RBI AND NEW GOVERNOR

In the past few days or rather weeks almost everything has gone wrong for the Indian economy . GDP growth rate lowest in last 10 years , Rupee touching all time lows almost every day , high CAD ,etc. Amidst all this gloom RAGHURAM RAJAN was made the new RBI governor .An IIT DELHI + IIM A +MIT ,(Ph.D) pass out, the best pedigree one can ask for a RBI Governor.  The market gave a thumbs up to the decision of making him the governor as he is seen as one who is more growth oriented . His predecessor D subbarao ,was seen as anti growth Governor which is not entirely true. One of the first thing Mr. Rajan did was to postpone the date of Mid Quater Policy Review after the announcement of FOMC meeting , which was quite pragmatic as a very important decision was to be taken by federal reserve about QE tapering. From the time Ben Bernake said that Fed would start QE tapering sooner than expected ,all the emerging economies' currencies went for a tailspin. Indian , Brazil are among the worst performers . Due to all this there was huge expectation from him . Though during his maiden interaction with the press he made clear that he has no magic wand to solve all the economic problems of the country. Then came his maiden policy decision . He gave a rude sock to the market by increasing the Repo rate. All other decisions of scaling back the emergency measures taken to control the fluctuation in the currency markets were on expected lines.But the question remains that has anything changed at RBI. Decision making at RBI is still not based on data science . There is absolutely no reason to explain the increase the repo rate . How can repo rate affect retail inflation. The rise in inflation is due to the increase in vegetable prices and fuel price . And by increasing the repo rate nothing is going to happen . These prices can only be controlled by removing the supply bottlenecks and constraints. An increase in repo rate at a time when GDP growth rate is at its lowest will further dampen the mood of the investor. Although remaining  decision will impact the cost of borrowing to the banks but what is more important is to give correct signals to the market . An increase in repo rate is not one of them. This shows that nothing has changed at RBI . It still considers Inflation targeting as its main aim and not the growth. P.Chidambram once said he is walking alone on the path to put India back on growth path . It seems he is still walking alone  even after making Mr Rajan RBI Governor.

IS THE GLOBAL ECONOMY REALLY OUT OF THE WOODS

Are the greenshoots for real?Are we really out of the greatest financial downturn since The great depression?Should the stimulus package given by the government all over the world be withdrawn?This is the question that is being discussed all over the world by all the economists and central bankers.Although the results shown by many companies in the states may be the green but the important question here is are they due to change in the fundamentals or due to the stimulus package?The headline GDP figure for the U.S in the 2nd quater has been positive but there has been no change in the unemployment rate which is at its peak in last 25 years at 10%.An interesting fact relating to the economy of U.S is that after 2000 the saving rate of Americans has been less than 1% which also was one of the prime reasons of the financial crisis.But now it is pegged at 6% although less than 8%(historically Americans save at that rate).The thing to note here is instead of spending the dollars they are saving it.And that can be one of the very important factor which can delay the global recovery.The Fed has in its latest announcement kept the rates unchanged at almost 0%.All the profit shown by the companies are basically due to the stimulus package given the government.And once the stimulus package is withdrawn then what will happen as there has not been much change in the fundamentals of the companies.Although when we look at the asian countries they seems to be in a better state of health right now. China has posted a growth of around 8% thanks to the huge stimulus package given by the government. But for the asian countries problem is of withdrawing the stimulus and more importantly the timing of the same.China is already facing the fear of an asset bubble formation due to the stimulus package.RBI-the central bank of INDIA has already signalled an exit from the accomodative stance on the monetary policy and yesterday PM also reiterated the same thing .Australia also has increased its rate becoming the first among the developed countries to do it.But even then for the global recovery to take place U.S has to stand on its own feet without the crutches of stimulus package and that seems to be a distant future.

Budget And its aftermath

Mr. Pranab Mukherjee ,the new FM presented his fourth budget on 6th july. There is huge media hype in whatever government does after the phenomenal success of the Congress party in the general election.So was with the budget.The share market shed about 1000 points on the budget day highest on any budget day.As the market was expecting way too much from the budget, especially on the removal of STT,FBT and CTT but the budget failed to deliver . The latter two were removed but the first one ,the most important one with the market's perspective was left as it was. But what i believe in is that the market over reacted.The market always want some big bang kind of news after there was nothing of that sort of in the budget. The budget was a very sensible budget taking everything into consideration. Yes the budget should have elaborated more on disinvestment but then "Budget are like AGM ,not every decision are taken in the AGM". The fiscal deficit for 2009-10 is 6.8% of the GDP.Yes there should have been more clarity on that front also that from where will the govt. raise the money.But as is clear from the budget that Pranab babu has choosen growth over fiscal deficit and rightly so because the only way to further now is to look for growth.The FM has clearly taken the stance for growth. Talking about 9% growth ,implementing GST bt April 1 ,2010 are really bold steps.Since the global market is still in the dold drum the internal consumption needs to be raised.The need of bringing INDIA and BHARAT together is very much necessary for India to become a dominant power in the world. The allocation for money for different social sector plans are directed in the right direction. SO all in all the budget was a very balanced budget an yes like i said earlier Budget are like AGM ,not every decision are taken in the AGM.