For savers and investors, money is now yielding real returns. Don't miss the bus this time

With the Consumer Price Index at 4.38 percent and the Wholesale Price Index at zero (yes, zero) in November, the Indian economy has come to that sweet spot where it should start picking up steam.

But we are not trying to celebrate zero inflation on the basis of one good month; the overall trajectory is also down. The fall in inflation is unlikely to be a flash-in-the-pan.

For savers, this is a good time to invest in debt and fixed deposits, before rates start falling further. Reason: After a very long time, money will be earning real returns even after adjusting for inflation.

The last 12 months’ average for the CPI is 7.61 percent and for the WPI 4.45 percent. Both are now well below the average interest rates being offered almost everywhere, which means returns on debt instruments are positive.

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The 10-year government bond offers a yield of 7.86 percent, tax-free quasi-sovereign bonds issued by AAA-rated entities like IRFC, NHAI and National Housing Bank are being quoted in the range of 6.9-7.1 percent (for long-term maturities of 10-, 15- and 20-year tenures), and bank fixed deposits are still in the range of 8.5-9 percent for one- to three-year tenures.

Since the chances are that interest rates can only fall in 2015, it would be a great idea to lock into these rates before they start falling further. Tax-free bonds, despite their sharp price increases over the last one year, are still yielding positive returns after inflation if one takes tax brackets into consideration. For those paying the top rate (34 percent, including cesses), a 7 percent tax-free rate is more than 9 percent pre-tax, and there is also the possibility of a small capital appreciation if rates fall from now on.

A rate fall is also good for equities, since it means values have to rise on improved discounting of future corporate cash flows.

If the rest of the world is going down the tubes and we can expect money to stay cheap in Europe, Japan and the US for most of 2015, we should expect further inflows into Indian equity and debt even next year - even if the flows are not torrential like this year. Year-to-date, FII inflows into equity were $17.2 billion and into debt $26.2 billion.

So, from a saver and debt and equity investor perspective, these are golden days.

What, then, about businesses? If interest rates are likely to fall, will they invest now? Or wait. My guess is they will start looking additional investment only after April but may use 2015’s bullish market to go in more for equity than debt. In any case, they are overloaded on debt.

This means a buoyant stock market will be used to drive fresh investment rather than low interest rates in the foreseeable future.

For the government, low interest rates mean lower costs of borrowing. But even government will have to rely on non-tax revenues (PSU disinvestment and spectrum revenues) to tide over its revenue shortfall in the short-run. After that, when growth revives, it will see a surge in tax revenues.

The signals are turning positive for both saver and investor. All it needs is a spark lit by government in the form of at least a couple of big-bang reforms for businesses to get charged up. The economy will then ignite.