ushma87star
Par 100 posts (V.I.P)
Opportunity in Adversity
THE INTENSITY OF GOVERNMENT INTERVENTION IN the money markets has never been this severe in the recent past – hikes in interest rates by a cumulative 3 percentage points and a slew of measures to reduce the prices of primary products. Given the extent of deregulation of the economy, there are few other controls left to tinker with. Inflation, a measure of rising consumer prices, in abating, but at a snail’s pace. Not surprisingly, the government is mulling increased regulation of capital flows into the country, like external commercial borrowings by Indian companies and FII-issued Participatory Notes.
Rather than adopt this regressive route, the government, to begin with, ought to step back and comprehend the outlook presented by the various agencies. The worst case scenario emanates from IMF at 7.8 per cent during calendar 2008. Rather than programming the rain gods to deliver good monsoons and meet the RBI estimate of 8.4-8.5 per cent, the government should aggressively go about attacking issues that hold up growth in the infrastructure sector – roads, ports and power sector. That little has happened on the ground is only corroborated by the recent industrial production figures – power generation has grown by a mere 3.3 per cent during the month of February.
The i-factor, if one might call it, takes significance for a couple of reasons. The instruments used by the government in combat inflation also inflict considerable injury on the manufacturing sector. This, since the instruments target the demand side of the market – reduce liquidity in the market, raise interest rates and, consequently, moderate the buying power of the consumer. But the problem originally began on the supply side, with increased global commodity prices and a lower projected consumption by the US, the world’s highest consuming nation.
There is no better time to effect substantive measures that will improve the competitiveness of the manufacturing sector – reduce power costs, and improve access to consumption centres. This will enable companies to hold their prices, consequently, help in containing inflation. What this requires is political will that is not lost to the whims of the regional parties, who by virtue of being allies of the ruling party, control several infrastructure ministries.
Evidently, the lowering of government controls over the years cuts both ways. Yes, we are no longer insulated from even the potential threat of a global slowdown. That said, we have margins to improve upon, that can mitigate the ill effects. Time for the right measures.
THE INTENSITY OF GOVERNMENT INTERVENTION IN the money markets has never been this severe in the recent past – hikes in interest rates by a cumulative 3 percentage points and a slew of measures to reduce the prices of primary products. Given the extent of deregulation of the economy, there are few other controls left to tinker with. Inflation, a measure of rising consumer prices, in abating, but at a snail’s pace. Not surprisingly, the government is mulling increased regulation of capital flows into the country, like external commercial borrowings by Indian companies and FII-issued Participatory Notes.
Rather than adopt this regressive route, the government, to begin with, ought to step back and comprehend the outlook presented by the various agencies. The worst case scenario emanates from IMF at 7.8 per cent during calendar 2008. Rather than programming the rain gods to deliver good monsoons and meet the RBI estimate of 8.4-8.5 per cent, the government should aggressively go about attacking issues that hold up growth in the infrastructure sector – roads, ports and power sector. That little has happened on the ground is only corroborated by the recent industrial production figures – power generation has grown by a mere 3.3 per cent during the month of February.
The i-factor, if one might call it, takes significance for a couple of reasons. The instruments used by the government in combat inflation also inflict considerable injury on the manufacturing sector. This, since the instruments target the demand side of the market – reduce liquidity in the market, raise interest rates and, consequently, moderate the buying power of the consumer. But the problem originally began on the supply side, with increased global commodity prices and a lower projected consumption by the US, the world’s highest consuming nation.
There is no better time to effect substantive measures that will improve the competitiveness of the manufacturing sector – reduce power costs, and improve access to consumption centres. This will enable companies to hold their prices, consequently, help in containing inflation. What this requires is political will that is not lost to the whims of the regional parties, who by virtue of being allies of the ruling party, control several infrastructure ministries.
Evidently, the lowering of government controls over the years cuts both ways. Yes, we are no longer insulated from even the potential threat of a global slowdown. That said, we have margins to improve upon, that can mitigate the ill effects. Time for the right measures.