Looking beyond the obvious, in the area of economy, finance and markets
Thursday, October 9, 2008
Will the Government bite the bullet?
India is following US with a 6 month lag. Fortunately we don't have the kind of credit crisis that US is facing now .
Nevertheless, growth would be significantly impacted across sectors. GDP to go down to sub 5% levels. Profit hit for nearly all Nifty scrips, with some going into losses.
Also, we too have a liquidity crunch similar to the US, though not so bad. Unless the government acts fast, Indian credit markets risk a shutdown and the economy risks going into a recession/ near recession.
US Government stayed on the sidelines for too long. The bailout and the rate cuts should have come around beginning of this year.
Though we have very competent economist at the helm (and I have a great personal regards for them) , still the Indian government is doing exactly the same thing as the US government did 6 months back - stay on the sidelines - take half hearted measures - and provide optimistic sound bytes.
Government to immediately do the following - (exactly Prof Nouriel Roubini recommendations for the US) - if we are to avoid a recession / near recession (significant slowdown is now certain) :-
Immediate cut in CRR to 6% and to 4% in a months time. Will infuse liquidity. Also cut bank rates by 2% to 7% and SLR by 5% to 20% in a staggered fashion over 4 to 6 weeks.
Unlimited protection of savings in banks for the next two years without limit. Will create confidence for account holders and avoid a run on banks
Increase spending in Infrastructure. To boost incomes, GDP and keep economy in track
Direct funding to commercial enterprises and banks by opening a lending window against collateral of securities. Can be routed through any one of government's funding arms.
Yes, inflation will increase, but a recession/ near recession will be staved of.
Will the government bit the bullet with elections not so far away? US government did not do it 6 months back. Now with its back to the wall, election or no elections , it has just no choice.