Citi report is bullish on India

Prime Minister Manmohan Singh got support from unexpected quarters with a report by Citigroup Smith and Barney predicting a stable economic environment, although only till 2006, when West Bengal and Kerala go to polls.

According to their market outlook report which came out on October 6, "sentiment on politics has improved since May."

The report says that long- term danger to India's economic prospects is represented not by economics "" "near term hiccups like inflation and agriculture but long term growth story is strong" "" but by politics as it will emerge after 2006 when the Left parties will clash with the Congress in the Assembly elections. The report further goes on to say that the "ability to perform has surprised on the upside, but stability will remain a factor in the coming months."

The government itself feels that its stability has improved since the Maharashtra poll results and would prefer to cross the 2006 Assembly election bridge when it comes.

The report gives full marks to Prime Minister Manmohan Singh and Finance Minister P Chidambaram for pushing reforms, some of which are "politically unpalatable to their allies" the Left.

These include allowing oil companies to raise petrol/diesel prices by a price band mechanism and introduction of transaction tax on securities. The demarcation between governance and politics made between the prime minister and Congress president Sonia Gandhi has also been given a thumbs up by the market.

It is however, the differences between the Congress and the Left on key economic issues which comes in for detailed study, although the government has been commended for managing to push through key reforms.

The Left's earlier opposition to FDI in civil aviation has been chalked down to "the Left parties having to appease the unions, while the Telecom FDI being stalled on isues of national security were brought up by the government's own allies."

On fiscal policy too there is differnce of opinion, with the Left of the view that expecditure could be higher but the "PM and FM maintain their view that there should be fiscal discipline." The pressures of coallition politics are also expected to push up expenditure on various welfare anbd other programmes.

Prime Minister Manmohan Singh who just managed to push through important changes in FDI caps, will be heartened by the report and the memory of the stock market crash after the NDA lost elections on its way to being a faded memory.