An Overview of Financial Year 2011-12

As we are heading into a new financial year, it may be prudent to examine all the key events which took place in the previous year from a political and economic standpoint

Politics: We have seen a number of political developments in the last 12 months, some of them with great import for years to come. I have listed down some of them (from whatever I recall at the top of my mind)

1. Anna Hazare & Baba Ramdev's Anti corruption movement
2. Blowing out of 2G scam and other corruption scandals
3. Assembly elections in West Bengal, Kerala, Tamil Nadu, Punjab, Goa, Uttarakhand, UP and other smaller states

The last 12 months have witnessed enormous churn in the overall political context with corruption coming to the forefront in national discussion weakening the congress government immeasurably. The assembly elections served to reinforce the weakening of the congress government as it performed below expectations in every single election in the past 12 months. 

In the next 12 months, we should expect to see a central government besieged by various scams and attacks from a number of players leading to further weakening before the final blow is delivered in 2014

Economy: The last 12 months brought about the spectre of stagflation over India. The credit boom during 2004-08 had hidden some of the structural deficiencies of the Indian economy. The global financial crisis led many to believe that the India bubble would be burst but future monetary and fiscal stimulus only postponed the problem to 2012. Now there is almost no scope for fiscal or monetary stimulus. The full effect of stagflation will be borne with 6% growth and 9% inflation.

Some of the key observations on the Indian economy during FY 2011-12 are as follows

1. There has been decreasing corporate profitability in every sector of the Indian economy. The overall corporate profits for India Inc will be marginally higher than what was in 2010-11. 
2. The debt bubble has been burst with a number of corporates finding it extremely difficult to pay back loans and maintain solvency
3. Policy paralysis of the central government which had been hidden due to excessive lending and euphoria on emerging markets has been fully exposed
4. Socialist policies like Right to food and fuel subsidies are causing wasteful consumption leading to capital wastage on an enormous scale.
5. Many Indian companies are restructuring their operations and this period will probably determine the winners and losers of the decade

 Inspite of the overall bad news, there have been some bright spots in the Indian economy like the impressive growth of engineering exports and also the IT sector. If the present growth continues in both these sectors it will provide relief to the economy as a whole