Inaction leads to Economic Paralysis

Economic Wait and Watch policy ruinous

Economy:

Can Indian economy be consistent to hold on to the growth rate of 9.5% it did 5 years ago? Very very doubtful.

       When US announced its qualitative easing, which would deter their bond purchase, Indian markets tumbled, Our markets were sitting on the fence and tumbled by 500 points (2.74%) (BSE) and Nifty shed 166.35 points (2.86%) to send markets reeling. It was an economic tsunami of sorts, waiting to happen, as our financial stalwarts prefer to wait and take no action.

       Our Rupee has slid to nearer to Rs 60/- yesterday and it was a brave effort which saw its devaluation flow to recover to Rs 59.27/dollar. Gold also knocked out the punch and nosedived to Rs 2,550 per gramme to touch Rs 20,400 to a sovereign.

       Our Current a/c deficit is widening due to uneven exports and excessive imports. The entire Foreign Exchange Reserves has nil contribution from exports as it has to consume the import costs, and the surplus in the export-import trade, we have FER which can contain 7 months of import. If there is drawl by FII which is natural, our Reserves get depleted.

       Petroleum costs, add-ons by Oil companies when they have nothing to lose, as the Crude oil is not imported by them, they get it refined at nil taxes, and yet for every paisa increase of the Rupee, they hike the Petroleum prices to compensate what they call under recoveries which fuels inflation in the local market. There is no outstanding increase of oil per barrel, but just because of currency depreciation, oil companies by their monopolies in the market. Of course, the few private players named Reliance would love to hike the prices, because it also considers itself to be a major monopoly.  

       But what is sad is the Economic Advisors to the Government remain bird watchers. Dr Raghuram Rajan, Financial Advisor, is in a state of illusion. He says, we are alert, we have many options. But measured steps will be taken in full measure at the appropriate time. Going further, India’s planning czar, Dr Ahluwaliah, says devaluation of the Rupee is a temporary phenomenon.

       Rupee parity with the dollar was Rs 40/$ (2007), it went steadily up to Rs 60/$(2013), and CAD deficit has been growing alarmingly and FER are depleted.

       Wait and Watch Policy is costing the country dearer; this is no Policy at all. We are inuring the economic growth of the country which will witness a slower growth with Budget deficit going up alarmingly and CAD becoming worse. If we do not leverage advantages now, we will never!