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The government is readying for elections. It has announced the final round of its fiscal stimulus package. With no signs of the measures taken till now leading to a recovery, the government is throwing everything it can at the slowdown. And, then it will leave the next government to clean up the mess –falling tax revenues, growing fiscal deficit and an economy that refuses to be kickstarted.
Enough money has been thrown at banks, industry and consumers. But none of them are showing any interest in it. The RBI has given Rs 300,000 crore in additional liquidity to the banking system, which seems like a lot that has achieved very little other than preventing a financial sector crisis. But now that banks are safe, what’s the guarantee one more round of lollies will force demand out of its hiding?
Indian companies are struggling with a decline in demand which is affecting production, a fact visible in the December’08 quarter. If October’08 saw a marginal decline in industrial production after more than a decade of continuous growth, November’08 threatens to be worse. Investors should brace themselves for nasty surprises when the quarterly results are announced.
More evidence of the slowdown, not that anyone needs it. The Indian Railways play a key role in the transportation of certain petroleum products, cement and clinker, coal, iron ore and agricultural products. In FY08, volume traffic growth was high at 9% but FY09 has seen growth decelerate. In November’08, volume traffic is up by just 1.3% to 66.6mn tonnes and up by 6.5% to 534.6mn tonnes in the April-November period.
Continue ReadingHere are some ideas to bring the economy back on the growth track. Some of these could be permanent, yet others could be temporary till the situation improves.
Continue ReadingThis is the third instalment of the weekend stimulus package. The government has lowered the cenvat rate by 4% across all rate slabs: 14%, 12% and 8%. The ad valorem duty on cars has been reduced to 20% from 24%, but it is still higher compared to the highest cenvat rate.
On Saturday, the RBI presented its part of the stimulus package, a combination of interest rate cuts, credit flow improvement, relief to exporters and rescuing banks from showing red ink on their books. Since mid-September, the RBI claims to have made available primary liquidity of Rs 300,000 crore. While the October crisis has blown over, when money evaporated from the system, it still does not appear as if there is money sloshing around.
The Indian government has been attempting several measures to boost economic growth. From today, petrol and diesel prices have been reduced by 10% and 6% respectively due to a sharp fall in crude oil prices. The Indian government is in the midst of putting together a package to prevent a recession.
India’s economic actions today resembled that of the US today: concerted action to restore confidence in the monetary system. Strange, that the system should have been exposed to be so weak when we supposedly had none of the rot that had permeated the US banking system. Makes one really wonder what went wrong. Maybe we will get to know sometime; at present all one knows is that there is a liquidity crunch, which is being blamed on various factors, ranging from rising credit demand, drying overseas fund markets, FII outflows and whatever else.
Continue ReadingNo one got this right. The pessimists said that India’s economic growth won’t last long, but it did. It even crossed the 10% GDP mark in a quarter. Then, the optimists said the Indian economy won’t slow down, but it has.