The RBI's policy review has not changed any thing other than the perception that inflation is still weighing heavily on its mind and the plummeting growth also now has started to trouble it. The governor has been reluctant to commit with a time line for the reversal of interest rates hikes but has given enough indication that down the line it will have to be done. I see it as a meek approach, he could have well spoken with certainty that the next time it will be moderated.
There is no question that if the demand pull is there, the supply side should be strengthened too and the supply can come in plenty when you have incentivize the investment climate and reduced the costs of operations through availability of cheap finance. This is how the progress comes about. Its not that curbing demand by monetary measures over longer period is the only option , in fact is a wrong thing to do for extended period.
It is also to be understood that the present inflation pressure is due to dilution of currencies all over the world. The US mitigated its woes through printing dollars, the answer to EU's problem lies in diluting the Euro's value. The stronger economies of Europe will have to eventually provide for purchase of debts of weaker nations by creating supply of Euros. This kind of back-door taxation spread all over the economy of Europe can only help, however, it will be something like rewarding the irresponsible economies which are weaker too. We in India resort to this by measures aimed at helping the poorer of the population without being overly concerned but then we a single nation. The Europe now is single currency area but many nationalities. This leaves the scope for not digesting to help the weaker. Europe has to learn to be single entity also politically to be able to address issues having wider implications.
I think that the future for the financial markets and the economies may be fraught with damning possibilities but to let it translate only in terms of cheaper equity is not right. The debt related securities should be supposed to be more at risk if the currency supply shrinks but the equities will still be having value. Reversely if there is expansion of money supply the equities will be ever more desirable assets. The bullion will be a burden in first scenario and welcome the second scenario.
The recent loss of value of rupee viz-a-viz the other currencies tells that now a larger part of India can be bought against a smaller piece of other nations. Suppose there is further extension in this very direction, do you think it would be in any way possible to consider the equation balanced. I think not because India's assets are far more valuable than this equation suggests. So, over time, adjustments will happen and in the mean time Indian exporters will be making hay. India can profit out of exports as the labour is surplus here. If some part of products is imported costlier, the whole of it remains cheaper than earlier but allows Indians to have more work at hand. The govt should look at removing constraints in manufacturing and should amend the labour laws and improve the taxation structure without loss of time. VAT regime should be made universally applicable for freer movement of goods within the country and allow for producers to optimise the production levels and achieve economies of scale. Cheaper per unit production cost will make us still more competitive in international market. China's achievements in the past have been due solely to this situation ie cheaper Yuan, optimal production level and lesser legal compliance burden and no such corruption that hinders production...kbk
0 comments:
Post a Comment