Two-step India: GDP slows, FII grows

Topsy-turvy year begins well, trips up, gains some traction towards the end

Nothing tells India's gloom, doom and boom (well, relatively speaking) story better than the Sensex. After beginning 2011 at 20,561, it collapsed to 15,518 by January 2012, but ended the year at 19,445. All this, mind you, in a year when the economy was supposed to be in the middle of an unprecedented collapse. And if it was all doom and gloom, why did FII rise from minus $400mn in 2011 to $24bn in 2012 with FDI showing a small fall from $28bn in 2011 to $25bn in 2012? Filling in the gaps between the highs and the lows is the India story, in all its pain and in all its glory—if GDP collapsed in New Delhi, FIIs from New York ensured the Sensex in Mumbai looked okay.

Despite the collapse in the Sensex that mirrored the fall in GDP growth, the year began well. After ending a 26-year marriage with Honda, home-grown Hero launched its very own hybrid scooter; at the same Auto Expo in January, Honda announced plans to make India part of its global export hub, a sentiment endorsed by Suzuki earlier this month when it said Maruti would be its global hub for small cars —including Peugeot, the Expo saw plans for $3bn of investment being announced. A few weeks later, Vodafone won its long-drawn battle with the taxman with the Supreme Court deciding in its favour. Not surprising, the rupee was strengthening all this while.

Even before Pranab Mukherjee crushed the India spell with his retrospective tax, things had begun to unravel. The government began acting tough with Qualcomm, playing politics with Reliance over its capex, going back on its written promises on the use of 3G spectrum to leading telcos ... SC compounded the problem when it cancelled 122 of Raja's licences though many of the original licensees had cashed out by then.

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