Column : The times they are a changin’

The rising liquidity should to some extent lift all boats next year with emerging markets big beneficiaries. Hot money inflows will generate appreciation pressures on many currencies which are likely to be resisted via a mix of temporary capital controls and central bank intervention. India's sizeable current account deficit of around $75 billion should be easily financed for the time being given abundant global liquidity. If the government's reform push continues with measures such as the Land Acquisition Bill, GST, further cuts to subsidies and more FDI liberalisation pushed through Parliament, the Indian rupee, which has been volatile over the last year against the US dollar, could even appreciate despite its challenging external financing requirements.

RBI, which looks set to trim policy rates early next year given fading inflation pressures, has also indicated it will reward greater fiscal discipline with rate cuts. Tighter fiscal policy and looser monetary policy could then reinvigorate corporate animal spirits and push economic growth back up towards 8% that India should be able to achieve with the right policy mix. If the looming general election of 2014 however induces populism rather than prudence in New Delhi, macro-outcomes next year may continue to disappoint with GDP growth only picking up a little from current rates of around 5.5%. The money printing policies of the West should provide Indian policymakers with undeserved time and space next year to repair macro-fundamentals and recast the policy mix. Let's hope that it is used!

The author is BNP Paribas Chief Asia Economist

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