Hi Ankit...
Firstly very good issue raised here....n m quite surprised how did this issue catch my eye so late????
Well We are in an age when every Tom, Dick and Harry talks about the stock market and the sensex. ‘’How much is the sensex at?’’ has become a question as ubiquitous as “What’s the score?” asked when India plays cricket.
But the men who really matter don’t seem to have any clue. Our Economist-Prime Minister confesses he does not understand how the share markets behave. Our Finance Minister too takes recourse in highlighting the fact as to how strong India is on its economic fundamentals. The ship of Indian economy is almost on an even keel. It may be worst, but it won’t sink. Predicting the Sensex is much like astrological predictions.
In such a scenario it is very difficult to say who will salvage the world from the economic crisis. It is also difficult to say who will spark hope at the end of the tunnel seeing which the stock markets may surge. Whether it is Republican McCain or Democrat Obama, both will find the going equally tough.
Well on our Economy front, three things will happen as of now.
(1)First, foreign funding will be reduce due to global liquidity crunch,
(2)Interest rates abroad will rise,
(3) and the rupee will depreciate as the existing PNs will exit the country.
In panic, the govt has made the PNs even easier to use, but in this situation of uncertainty that will not help much. All that PNs will do anyway is to pump rupees in the system and cause inflation. This will affect our investment and the cost of imports that are essential for our export industries. This is why while the dollar is sinking; the rupee dollar rate has risen from Rs.39 to Rs.49 in juz a month. Therefore, with the rise in the import cost due to devaluation of the rupee, we should expect a deceleration in the growth rate of GDP and a recession till correctives are applied. While the RBI has cut the CRR claiming that step would bring down the interest rate, the prime lending rate has actually gone up from 10% to 12%, reflecting the tight liquidity position after foreign inflows have slowed down.
According to my opinion the Govt should use the Foreign Exchange reserves in US treasury bonds under such circumstances, which will help the Indians to buy up through mergers and acquisitions US Companies that are up for sale. But, for long-term financial stability India will have to embark on financial reforms which have been on hold since 1996. Also...
(1) A commission should be empowered to have a re-look at the budget allocations and their actual deployment, and suggest restructuring.
(2) All State Electricity Boards should be abolished and replaced by private operators which have to tender for it and make handsome deposits.
(3) The law should require that the capital account in the budget should always be in deficit or balanced, while the revenue accounts should be in surplus.
Financial Crisis in the market economies of democratic countries are not unusual. It is also not unusual for such economies to make a policy corrections and come out of crises. During this decade itself the West went through two crises: the first was in 2000, the “dotcom bust”, and the second was after the 9/11 terror attacks. But the Market Economies came out of it. Infact we saw a boom between 2003 and 2008. The important fact, therefore to remember about all these crises is that all affected market economies do recover, and prospered subsequently.
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Re: Indian Share Market -
December 16th, 2008
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