Byapaar.com – The Indian Business Blog

In the midst of warning by the International Monetary Fund (IMF) of developing economies being toppled in the ongoing financial crisis, guardians of the Indian economy are working overtime to ensure India did not suffer much due to the global phenomenon. There is already signs from everywhere about an imminent slowdown of economies all over the world including the USA which reported a contraction of .1 percent of its economy last week.

It is really heartening to see that the Government of India is doing its best and working with leaders of the industry to see off the crisis. Last week the Prime Minister of India, Dr. Manmohan Singh held a meeting with business leaders like Anil Ambani, Sunil Mittal and others to hear their views on tackling the problem. According to the captains of the industry, the government must relax the credit policy without worrying too much about inflation so as to pump in money in the cash strapped financial sector. They opined that there is already signs of slowdown and if liquidity crunch is not addressed immediately, the economy would suffer more. They urged the government to lower interest rates and release more cash in the market to shore up the already nervous financial sector and thus bring the much needed confidence back in the market.

It seems it is lucky last few weeks in the office for the Manmohan Singh led NDA government as inflation dipped below 11 percent last week for the first time for 5 months and as a result the Reserve Bank of India announced a cut in CRR (Cash Reserve Ration) rate by one percentage point to 5.5 and REPO rate by 50 point basis to 7.5. This will release Rs. 700 billion in the market. Both the government and industry hope that the latest action is a step in the positive direction and it will boos liquidity in the system, stimulate growth and stabilize the financial market. The governor of RBI while announcing the news hoped that the credit requirements would be met through this action and effect the industry positively by picking up growth momentum.

But as always, while welcoming the move, industry leaders hoped the government and the Apex Bank would take more measures to tide over the global financial crisis.  They are asking more reforms in sectors including government debt market to tap new class of buyers and thus bring in more money in the market.

The stock market has responded positively to all these steps as it has been gaining continuously for last 4 trading days. The BSE Sensex has gained a credible 293.44 points today and have crossed the psychological barrier of 10,000 for the first time after it sank few weeks back.

Sorry for not being able to write for so long! But it is not easy managing three things at the same time – teaching, learning and maintaining 5 blogs. At the same time – looking after family ( my parents went to UK and will stay there for 6 months). In the meantime I have to do all marketing, grocery – and so and so which were being done by my retired father for all these days! Anyway, here I go – back again to hone and share my business knowledge. It has not been particularly good time on business and economic front in India. Inflation is at seven years high and is pegged at 8.75 percent. Experts are of the opinion that the government has lost control on the basic mechanisms to check inflation. Despite several measures including raising interest rates, there is no sign that the inflation will come down. Food prices, daily necessary commodities are at all time high price. Prices of mechanical and industrial products are rising daily. On top of it, the government had to raise fuel prices at India record of $1.25 per litre (petrol). Due to rise in interest rates, there is liquidity crunch in the financial sector and stock market is ever weakening after a sustained period of robust growth. The Rupee has also weakened by almost 5 percent against all major international currencies including the US Greebuck and Euro. The condition has worsened so much so that the government has recently levied more taxes on higher end sedans and SUVs in order to discourage fuel guzzlers on the road. Only positive sign that I can see is the ever burgeoning number of Forex reserves that stands at $315 billion. So long for today

Coupled with continued bull run in the Indian stock market, another problem is lurking that might hamper the country’s resolution to achieve higher economic growth with price stability. Inflation rate has just crossed the 5 percent mark for the first time in last 10 months. Week ending on 23rd February pegged the Wholesale Price index at 5.02 percent. Rising food price and increase in cost for manufacturing good are some reasons for the inflation to shoot up.

the apex bank in India is a bit worried about the recent spur in inflationary pressure. Mr YV Reddy, the Governor of Reserve Bank of India expressed his concern in a symposium held in Paris on “Globalization, Inflation and Monetary Policy” . According to him

“In the Indian context, considerable weight is currently accorded by the RBI to price and financial stability while recognizing it twin objectives of growth and stability”.

The Indian government is looking to control the the inflationary pressure below 5 percent and targeting to keep it around 4-5 percent. But still consumers are feeling the heat.

Inflation has been rising and rising high touching a 13-months record at 6.68 during last week. Indian government has naturally become nervous as general election is not far away and it does not want to be seen a failure to control price rises just before election. So it has called a high level cabinet committee meeting as to how it can tackle the disturbing inflationary  trend.

But it is almost clear on how it plans to from what P. Chidamabaram, the Finance Minister suggested! According to him inflation has to be curbed even if it is at the cost of growth. The Indian industry has sharply reacted to the suggestion made by Mr. Chidambaram. According to Mr. Sanjay Budhia, the Chairman of CII ( Confedaeration Of Indian Industry) – the government should adopt a policy that would support a balance between industrial growth and inflationary reduction. Any hasty measure by the government to bring down inflation would result in loosing the momentum of growth that India has seen over the last decade or so.