NOURIEL ROUBINI: 'PERFECT STORM' COMING FOR GLOBAL ECONOMY IN 2013

Nouriel Roubini is an eminent economist, who predicted the 2007-2008 Recession that shook the world.



Definitely, the world is not in an economic comfort zone. Discretion in speculative investments and spending is paramount for individual investors, in 2013 & 2014.
Control of TWIN DEFICITS; Current Account & Fiscal deficits will be necessary for all developed and emerging economies, for the long term health of their economies, which translates to higher taxes and less spending by sovereign governments. The world economies are highly coupled than ever before and effects of isolated economic tectonics, will be felt by other economics.
This scenario can, in a way, dent the GDP growth prospects and elevate the unemployment levels for many world economies including India.

 Disclaimer: Shared this video, available in PUBLIC DOMAIN, in public interest.

TIME TO BE CAUTIOUS WITH PERSONAL FINANCIAL INVESTMENTS

The overseas investors turned bearish in April 2012 and pulled out Rs 777 crore, according to the data available with the market regulator SEBI, attributed to a host of factors, including the government's anti-tax avoidance rule (GAAR) proposal announced in the Union Budget and S&P lowering India's credit outlook to negative from stable.

The negative outlook is a consequence of India’s penchant for populism laced vote bank politics as well as extraneous factors which are out of its control. India’s government finances have failed to improve despite high economic growth in the past decade due to unrestrained non-revenue expenditures, small tax net, increased subsidies, unfavorable inflationary pressures due to supply side constraints, Credit & European economic crisis to name a few. These factors have led to deterioration of India’s macroeconomic factors viz., widening of fiscal deficit, moderation of economic growth, slackening in investments, dwindling foreign exchange reserves, and sustained devaluation of Indian currency. These coupled with the governments’ inaction or economic policy paralysis due to coalition politics, RBI’s fiscal policy of high interest rates to tame inflation, Infrastructure issues, persisting inflationary pressures due to supply side constraints and governments’ inability to tackle the commodities supply side constraints have been dampening investment climate and foreign fund inflows.

Undeniably, the Indian economic scenario does not give a feel good factor either for an investor or for an Indian citizen, unless, India returns to a robust growth, healthy government finances and low inflationary environment. It is imperative for Indian policy makers to persistently pursue policy efforts to shrink long term governments’ expenditure; reduce subsidies and expand the tax net to make it more inclusive; address the Infrastructure and commodity supply side issues; and give impetus to the GDP growth.

Deutsche Bank along other global business houses recommend getting more defensive on Indian stocks until investors see more certainty on economic indicators and policy, a more stable rupee and improvements in corporate confidence. Given the uncertain economic scenario ahead for the country as well as the other regions, pecuniary awareness and prudence are keys to personal financial investments.

NEED OF THE HOUR FOR INDIAN ECONOMY - INFLATION ADJUSTED BONDS/ SECURITIES

Indian house-holds fascination for GOLD for its ornamental value is comprehensible as it is a part of Indian culture and tradition. However, of late, Indians have started buying GOLD as a hedge against inflation, thus enormously increasing the physical gold imports causing a huge trade deficit which is resulting in ever increasing India’s fiscal deficit. Gold imports are next only to Crude oil imports and if this import component is not reduced, it will have a wide ranging direct and indirect impact on both macro and micro levels of economy.

Gold demand and imports can be reduced partly, if Government issues Inflation indexed bonds/ securities akin to the instruments in place in the developed economies viz., US, UK, France, Italy, Canada etc,. It can be a good instrument to hedge against inflation for investors.