Friends,
There is positive outlook around the world. After DOW closed up by over 400 points yesterday, the Asian markets have started to see reason to shed fears.
China has shown GDP growth figures of 9 pc for the III qtr. In fact US recession has more to do with China than with India excepting for the fact that India requires capital flows from there but China has surplus dollar pool and now does not need capital from outside as much as we do. China’s exports to US are major cause of its GDP growth and now it will have to raise domestic consumption which can come only when its leaders are ready for putting incomes in the hands of workers and labour. This can be done only by making the cost of production high and would further make it less competitive in international market place. So, what had to happen is happening. Indian corporates have been under pressure to raise salaries through out the boom period of last four/five years and would be able to contain wage bill this year. If you recall, I had mentioned that the year 2008 will put China under some kind of slow down.
It is good that we have a PM who is an economist too. While I objected to Reddy’s hawkish stance on every occasion when he tightened the supply of money for the fear of inflation going out of hand. My contention was that when the inflation is not due to local factors why put the productive machinery to do with lesser money supply and strangulate it. Luckily, he has been replaced with somebody who listens to govt head , PM has seen to it that the delay does not mar the industry. His timely intervention has done the needed repair to the damage done by Reddy.
Also, now, our PM is stronger PM because the lesser ones have thought it fit not to do anything by speaking absurd thing in this period of turmoil. Do we not see the Paswans and even PCs keeping cool and giving back leadership to PM. Our FM has understanding but likes to tease before he does some thing likable. He has to moderate the impact of STT and service tax which is making India loose business to Singapore like places as far as the security trading goes (Singapore now accounts for 40 pc trade in Nifty futures).
The PM has been so careful as to reassure that further steps would be taken as soon found needed. These words should be music to the ears of trade and industry. The matter is so simple, the money supply has to be at level where there is optimum production, inflation or no inflation. The simplest tactic to keep inflation off is by keeping the govt expenditure limited to revenue earned and let it be met by deficit financing, any attempt beyond this is bound to have ill effects on this side or that.
In my opinion it will be prudent to bring the repo rate down to 7 pc and CRR down to 5 pc and this is not some thing extra-ordinery to do, we had CRR of 4.5 pc and repo rate of 6 pc in the year 2004. The sole factor for the slow down in India will be a defective monetary policy and nothing else. This is needed also because the banks and financial institution have to be provided help that would make them stronger and look stronger too. This is in fact in everybody’s interest after seeing what happened in Western world.
I invite your views through comments columns, its so easy.
HariOm,
Krsna Khandelwal
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