The festive season rolls in again and with it, the stock market is busy spreading cheer. IIP numbers, as we had expected are rising; the HSBC- Markit PMI survey confirms expansion in manufacturing activity in September with encouraging news on the new orders front. Vehicle sales are also up and as the mood sets in for rate hikes next year, credit markets are set to buzz once more. From this month onwards great times are expected at the consumer markets.

Exports though continue to reel under the impact of international slowdown, August data shows decline of 19.4%. We can expect this lacklustre scene to continue through this year as global recovery is still slow, apart from a few specific sectors where large companies are diverting their international value chains towards India e.g auto sector where we beat China in exports earning rave reviews globally. In general, the up-trend appears to be quite well spread across the country, while Mumbai seems to be the most upbeat, on back of re-entry of international capital via FIIs. Rains finally did show up and conditions in the north-west are not as bad as expected a couple of months back. There are therefore great expectations from the rabi crop now.

One worrying issue that we have highlighted before is the growing Naxal activity. Naxals are a response to a non-functioning and badly performing state. The less one trusts the state to act in a fair manner, the more clout the Naxals get. There has to be a fundamental change in governance to strike at the roots of this counter-insurgency. Meanwhile, Naxals are concentrated in areas with large tribal populations, and almost all large projects in these areas are stuck. The government will be ?forced? to use greater force to counter the Naxals. But the point remains that rehabilitation has never been a priority for any government at the state or the centre, thus playing into the hands of the Naxals. The impact at the macro-level will play out with large projects being inordinately delayed because no one really trusts the promises of the government or private entities on rehab in any of the tribal dominated areas in the eastern states.

Last month we explained why it is not in India?s long term interest to tread the route of foreign loans even if the option looked attractive in the short-term. Sooner than we expected, though, the World Bank approved a loan of $4.3 billion in September ? the second largest loan for a single country in a single year. Interestingly, this loan is said to be in support for India?s economic stimulus, a country that the World Bank itself projects to be fastest growing country in the world next year. Such support may be comforting to some but we reiterate: high fiscal deficit and a rising debt burden are hardly a recipe for sustainable growth.

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