After dinner at a tony Delhi restaurants on Monday night,a group of bankers asked themselves whether RBI governor Duvvuri Subbarao would raise interest or hold rates the next morning.The 4-2 majority was in favour of a hold. Next day rates were hiked for the 13th time in a row. Several banks and brokerages criticized the move. After all,12 rounds of hikes hadnt tamed inflation. At MF Global,economist Anjali Verma argued, If the RBIs objective is to stimulate growth, it becomes unclear how a repo rate hike, along with the decontrol of banks savings rates would achieve this goal. But the Banks primary role now is to tame inflation. And by Thursday,when food inflation numbers came in at 11%-plus, ripples of worry spread out across the political system. Higher or lower growth worries business leaders and economists. High inflation eats away at everyones income. Prices have to cool well before elections start, said a senior Congress politician.Elections are due,probably as early as February, in UP, Punjab, Uttaranchal and Manipur. Later in the year, Gujarat will go to polls.The Congress party believes it can do well in all these states.But it fears the anger of the poor over rising prices.Average inflation in the year so far is a bit over 9%, nearly double the 5% rate that the RBI and policymakers are comfortable with. Subbarao expects this to settle to around 7% by early next year. The rate hikes are beginning to work.Typically,interest rates cool prices in organised sectors like manufacturing. And at least in two manufacturing segments, rubber and plastics,and chemicals,inflation is around 8%, lower than the average.As the RBI tries to rein in prices by hiking interest rates, the higher cost of borrowing kicks in,denting some sectors. Last year,Indias car sales zoomed at 30%,this year it could be as low as 2% to 4%. But should we blame the RBI and the higher cost of borrowing for the industry-investment slowdown One way to check if interest rates are the culprit is to check whether banks are lending much less than before.And here the numbers spring a surprise. At the beginning of this fiscal year,bank loans were growing at a healthy clip of around 22%; now, theyve dipped a bit, but the overall growth is still a very respectable 20%. It gets more interesting if you dig into whos borrowing how much: loans to industry are growing nearly 24% now, close to the rates last year and faster than the year earlier; its the same story for services.Personal loan growth is higher now than in the last two years.Clearly, three pillars of the growth story industry, services and consumption are intact. Whats looking shaky is Indias great investment-driven infrastructure story.At 23% growth,lending to infrastructure is cooling off.In earlier quarters,this was growing at rates between 30% and 55%.The only difference between infrastructure and other sectors is one word: government.Not only is the government a major player in these giant projects,it shapes policies and gives clearances that are vital to get large road,port or power projects off the ground.But the government,battered by scams and discord among key players,is a shadow of its former self.Files stay stuck in key departments and the work of building India is grinding to a halt.Dont blame the RBI.Other people deserve the flak.On Diwali as India celebrated the festival,a low-key analyst called Amitabh Dubey,working for a boutique UK-based advisory called Trusted Sources, published a devastating report whose implications havent yet sunk in for most people.Titled, Why Indian politics will exacerbate market volatility, it has a subheading which says,A leadership transition may be forced upon the Congress Party.Dubey minces no words as he writes,Political uncertainty will contribute to market volatility for the next several quarters as the ruling Congress Party grapples with a leadership transition.Manmohan Singh could be gone as early as 2012.The analyst points out that the early compact between Sonia Gandhis welfarist and Manmohan Singhs market-focussed approaches to policymaking has now frayed.He writes, Until about a year ago it seemed that this arrangement would continue successfully,as Singh initiated steps to rein in runaway subsidies and Gandhis advisers prepared the ground for an ambitious,and potentially expensive, Right to Food programme. Click here for restaurants in j.p nagar. However the erosion of Singhs authority as a result of the corruption scandals has changed this equation.Singh is hemmed in as much by graft allegations as squabbling within his government. His ability to overrule cabinet colleagues, as he did in 2010 when pushing through subsidy cuts, has weakened. And the perception that Singh stood by as his cabinet colleagues captured policymaking has definitely hurt him, writes Dubey. Three options are discussed : First,status quo with Singh as PM and the government muddling through; second, a new PM with A K Antony or long-shot Meira Kumar as candidates, and finally, to get Rahul Gandhi into the top job.So that,in black and white,is the real reason why decision-making has stopped,why policy is stuck,why a gridlock in Delhi is stalling the economy.India today isnt spooked by interest rates;its in search of a leader in the corner office.Source"TOI"
No comments:
Post a Comment