Recently RBI Governor (RBI-G) D
Subbarao addressed IIT-Kanpur Alumni and made some observations. http://www.moneycontrol.com/news/economy/5-6-growth-not-sufficient-says-rbi-governor_833324.html In fact RBI-G is admitting that his own policies since
2011 were wrong! Financial Thoughts(FT) have taken the key sections of the
speech and provides some comments, which are captured below:
RBI-G: “Growth rate of 5-6 percent is not
sufficient for the economy, which has the potential to grow at double-digit
rate provided some issues are addressed”
FT Comments: To achieve growth, proper monetary policy is needed. The interest rates have to reduced - which
RBI had increased during 2nd half of 2011. Since then the
growth rate was on the downward trend. Correlation between rate hike and
slowdown is well established.
RBI-G: “Pointing out some of the long-term
challenges for the growth, Subbarao said there was a need for stable and
predictable macroeconomic environment, removal of infrastructure deficit, skill
improvement and job creation. He said there is also need for raising
agriculture productivity, and improvement of social sector outcome.”
FT Comments: RBI clearly
failed in this. Whilst RBI is supposed to be a guardian of foreign currency
exchange rate, they have failed abjectly. Once $: INR was stable around Rs45/-
now it has touched Rs55/- and it may fall further resulting in higher cost of
fuel, which drives the economy. See the link http://www.financialstrategyonline.com/2011/12/rbis-smart-moves-taking-india-down.html On another blog post dated 21 Oct 2011 Financial Thoughts had screamed as follows:
“Those who support further indiscriminate rate hikes must go back to US in 2006 when US Fed was blindly hiking the rates in pursuit of a mirage, which achieved nothing but a fantastic economic collapse in 2008”
“Those who support further indiscriminate rate hikes must go back to US in 2006 when US Fed was blindly hiking the rates in pursuit of a mirage, which achieved nothing but a fantastic economic collapse in 2008”
RBI-G: "We are quite happy that India is
growing at 5-6 percent, but I must tell you that is not sufficient. That is
much less than our potential ... unless we grow at 9-10 percent year on year
for about 10 years we cannot pull hundreds of millions of people out of
poverty,"
FT Comments: Totally wrong!
In fact many Indians are unhappy in way things are mismanaged and brought to
this level.
RBI-G: "India consists of the largest number
of poor people in the world. India has more poor people than the entire economy
of South Africa," Subbarao, who is also an alumnus of IIT Kanpur, added.
FT Comments: For the sake
of poor, put the economy back on track on 9% growth rate. Studies have proven
that since liberalisation in 1991, the Indian Poverty has dropped because of
the growth in the economy. Even slums in India have a TV set and two wheelers
which during 1980s was the luxury of middle class. Post liberalisation, middle
class migrated to four wheeler, however it becomes unbearable now due to the
hike in fuel costs, thanks to RBI whose foreign currency management has exacerbated
the issue.
RBI-G: “Inflation is still high and stubborn.
Balance of payments is under stress. Decline in investments is a worry.
Investments not taking place today, that's a worry,"
FT Comments: Very sad to hear
this as the interest rates were hiked in the first place to curb inflation!!
Secondly investments will not take place if the debt finance is costly. Thirdly with the slowing growth in India,
there are other countries with better profitable opportunities as far as FII
and FDI are concerned. FII and FDI deploy their capital not for charity; but
for profit. Right now, India is not the second fastest growing economy but the
third or fourth!
RBI G: "So people worry whether we have got derailed
from the high growth trajectory. My short answer to all those questions is that
the India story is still intact and India's growth story is still
credible," he said.
FT Comments: Whilst Indian
Growth story is still credible, we wait for a radical change in RBI policy or a new RBI Governor similar to Bimal
Jalan to rekindle growth in the economy.
Financial Thoughts also believe that Narendra Modi,
who has an excellent track record in ruling Gujarat must be given a chance to
rule from New Delhi. Whilst many will point out to 2002, Financial Thoughts
would like to point out to the role of congress leaders during 1984 massacre in
New Delhi. Financial Thoughts do not support any type of massacre or
violence (as it reminds the chimpanzee past of humans!? Real humans are more
evolved and sophisticated and do not indulge in violence – learn from Mahatma
Gandhi or Martin Luther King)
With Modi at helm, the probability of India growing at 10% and becoming an
attractive investment destination of the world would be a reality.
No comments:
Post a Comment