The worst hangover anyone can have on January 1, 2005, will come not from the varied intoxicants available in the open and underground markets, but (should one be careless enough to make the mistake) reminiscences from the year gone by. There were highs galore in 2004, and lows too. There were successes and failures, promises made and fulfilled and those not. The government changed (something not too many people anticipated). The stock market boomed, then crashed, and then boomed again. Business families went to war. The monsoon threatened to play truant, then didn't. The communist parties, critical allies of the ruling United Progressive Alliance, made enough noise about blocking all economic reform that was, in their mind, anti-common-man, anti-public-sector, anti-labour, and anti-Indian (an all-encompassing definition that includes just about any reform at all) and then, quietly, allowed the government to go ahead with what it wanted to. And through this all, India Inc. went quietly about business as usual. For the first half of the financial year (April-September for most companies), a universe of 3,627 companies registered its highest aggregate revenues and net profit ever, although growth rates were beginning to taper off (as they invariably do) from their 2002 and 2003 peaks. And between January and December 2004, Indian companies spent around $1 billion (Rs 4,400 crore) on overseas acquisitions, a clear indication that India has arrived on the global stage.

The coming year will continue to find India Inc. in this resilient mode. If oil prices come down (as most analysts expect them to), it stands to gain, although it will definitely not lose if they stay where they are right now. The stock market, even the bears ruefully admit, shows no sign of cooling down and the ever-increasing earnings of companies will ensure that the price-earnings multiple stays rational, even as indices scale new highs. A weak dollar (that will get progressively weaker) should help the cause of the oil import bill and strengthen the government's financial position. And even if everything that can go wrong does go wrong, India Inc.'s competitiveness can still save the day. That is something all of us learned in 2004.

-Shailesh Dobhal

Budget 2005
Can He Pull Another Out Of The Bag?

Finance Minister P. Chidambaram: Reform redux!

I think if all players play their part, the year will end on a very substantial and positive note." That is what Finance Minister P. Chidambaram said on December 13, 2004. He had just presented a 55-page Mid-year Review (of the economy) to Parliament without so much as a murmur of protest from the opposition parties. Chidambaram's gushing quote can be attributed in one part to the way Parliament received his report and in another to what it had to say on the performance of the economy (thus far, good; and going ahead, can even be better). Interestingly, the quote can also be taken as a reference to the content of Budget 2005.

The Finance Minister has not been coy about this and has hinted that Budget 2005 will be as reformist as can be. Among the various initiatives he has listed (as future reforms) and the Mid-year Review mentions are: removal of discretionary (tax) exemptions; raising the tax-to-GDP ratio to 10 per cent; expanding the tax base; reducing the food subsidy; and catalysing investments in sectors such as airports, roads, power and ports. Economists are confident that Chidambaram will also address other issues such as reducing the rate of corporate tax from 35 per cent to 30 per cent, reducing the peak rate of customs duty from 20 per cent to 15 per cent, and pruning the customs duty on crude oil from 10 per cent to 5 per cent. Another dream budget? We think so.

-Ashish Gupta

Cities
The Watershed

City of joy: Yes, and every other emotion, including ire

It's hard to ignore the present-forget air traffic being disrupted in North India because of fog, it is happening even in Bangalore this year, only, in the city's case it is smog-while commenting on the future of Indian cities, but this writer will try to do just that. The motive for that seemingly blinkered approach is this: 2005 could well be the year things start improving for the better in India's cities, or it could be one when things get so bad in some cities that businesses exit them, the same way they did Kolkata in the 1990s. In other words, 2005 could be a watershed in the history of Indian cities.

The second part of the argument is easy to prove: circa 1947, 14 per cent of India's population of 333 million lived in cities; today, the corresponding number is 33 per cent of 1.1 billion (and this population accounts for 60 per cent of India's GDP). India boasts 35 cities that have population in excess of a million. Already, the infrastructure in most Indian cities, especially the ones that have been successful in terms of becoming preferred destinations for businesses from other parts of India and all over the world, is stretched thin. Pune is choking on its own traffic, Hyderabad is polluted, Bangalore is a victim of its own growth and Chennai has no water.

The first part of the argument is based on the fact that India's planning commission, supported by the Prime Minister's office, and aided by a small group of citizens, is working on an urban management framework that should address all issues listed in this article and several others that aren't. January is when things are expected to happen on this front and that is when you will get to read something on this initiative in this magazine. Hope, as they say, springs eternal.

-Venkatesha Babu

Disinvestment
The IPO Route

It's a bit like having your cake and eating it too. Initial public offerings (IPOs) will be the preferred disinvestment strategy of the government. Sometime in 2005-06, the government will divest part of its stake in public sector heavyweights such as Bharat Heavy Electricals, Bharat Sanchar Nigam Limited, Shipping Corporation of India and a host of banks including Punjab National Bank. If the stock market continues to behave the way it is doing-and chances are it will-the government can expect to make a killing, do its reformist credentials no harm, and still stay in control of these firms.

-Ashish Gupta

Economy
Safe Haven

It was a long time coming. In 2005-06, India could finally achieve the exalted economic status of a safe haven. Other countries have been economic safe havens before, notably Taiwan in 2002 and South Korea in 2003, but this is the first time in a long while that an economy as large as India (with an estimated GDP of Rs 25 lakh crore in 2004-05, it is set to be the 12th largest in the world) has occupied this position. One reason for that is economic circumstances in other parts of the world, notably the imminent slowdown in the us and China. Another is the growing opinion, among economy- and India-watchers in India and elsewhere, that the ruling United Progressive Alliance (UPA) government is business-friendly and keen to do the right thing by the economy. And yet another is the fact that while one sector of the Indian economy, agriculture, will hold its own (read: grow by 2-3 per cent in 2005-06), the two others, industry and services, which account for 76 per cent of the country's GDP, will grow at between 7-7.5 per cent and 7.5-8 per cent, respectively.

That isn't just this magazine's opinion. As evident from estimates provided by organisations such as the International Monetary Fund (IMF) and DSP Merrill Lynch (See 2005-06 Will Be A Good Year), the Indian economy, which grew by 8.2 per cent in 2003-04 and nearly 6 per cent in 2004-05 is clearly on a roll. Foreign investors think so: aggregate investment (foreign direct investment, FDI, money pumped in by foreign institutional investors, FIIs) touched $13.2 billion (Rs 58,080 crore) in calendar 2004, up from $10.67 billion (Rs 46,948 crore) in 2003. Economist Surjit Bhalla, the Managing Director of Oxus Research & Investments believes there are enough things going for India (he proceeds to list them out): a sustainable industrial recovery, a moderate rise in pricing power that will translate into robust earnings, and growing confidence in the UPA government's commitment to the cause of economic reform.

There is also sufficient numerical evidence to suggest the same: inflation eased off from 8.3 per cent in August 2004 to 7.02 per cent in late December; the prices of industrial commodities are already headed south in anticipation of a slowdown in the Chinese economy (that would mean India Inc. can soon expect its costs to go down); the Reserve Bank of India says investments in project spending will go up by 515 per cent in 2004-05 over 2003-04; and the fiscal deficit for the first half of 2004-05, at Rs 53,235 crore, is 38.7 per cent of the budget estimate for the entire year, as compared to the Rs 81,014 crore it was at in the first half of 2003-04.

Things can still go wrong. A hike in the interest rate could smother the investment boom, government spending could increase if revenues cannot keep pace with the UPA's poor- and rural-friendly programmes, and, as a report put out by the Asian Development Bank warns, "another major spike in oil prices could bring down (India's) growth rate to 6 per cent in 2005". Still, six isn't bad at all.

-Ashish Gupta