Expert Zone

Straight from the Specialists

Invisible hand of market at work

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

India’s economic situation is at least grave, if not exactly in dire straits. Growth is at a decadal low, consumer inflation is persistently high, jobs have never been as scarce, the currency is volatile and the investment cycle is showing no signs of revival. Many of these problems are a result of bad policy and global economic conditions, but several are also the outcome of a natural economic cycle.

The Indian economy has developed several imbalances over the years as a result of bad policy and the usual cyclical fluctuations. The corporate sector went on an investment binge between 2005 and 2012 and is now saddled with significant amounts of excess capacity in several core sectors. The government itself went overboard with spending, first in 2009-2010 with the stimulus in response to the global financial crisis and then with its various populist programmes.

The result of these excesses is most obviously visible in the high current account deficit, retail inflation and property prices. After remaining in the 1 – 3 percent range for most of the last decade, the current account deficit rose to a high of over 6 percent of GDP in December. Consumer inflation too has remained above 9 percent ever since the stimulus began. And despite a weak jobs market and a slowing economy, property prices across the country kept rising till early 2012 and are still rising in some parts.

Time to get used to a weak rupee

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

The fall of the rupee has become politically embarrassing. When the rupee crossed 60 to the dollar, the government and the Reserve Bank of India (RBI) thought it was time to act. The RBI tried to suppress speculation that had exaggerated the rupee’s fall and the government sought to increase foreign resources to fund the current account deficit (CAD).

The RBI complied half-heartedly. “We let our exchange rate be largely market determined, but intervene in the market to smooth excess volatility and/or to prevent disruptions to macroeconomic stability,” Governor Duvvuri Subbarao said in a speech in London.

India’s current account deficit: solution lies in exports

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(Any opinions expressed here are those of the author and not of Thomson Reuters)

The U.S. dollar is the major currency for international trade. Most countries use it to pay for their imports and also peg the dollar for exporting products and services.

The balance of trade (net import or export) would determine if a country is a net payer or a receiver of dollars. Trade, along with other dollar inflows (portfolio/FII, FDI, inward remittances), determines the overall availability of the international currency for a country to engage itself in the global economy. This also has a bearing on determining the exchange rate of a country’s own currency with that of the dollar.

Investment boost needed to break India’s vicious cycle

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(Any opinions expressed here are those of the author and not necessarily of Reuters)

The current account balance reported last month hammered in the fact that India is spending more than it saves. While it had been stubbornly in the red for all but a couple of years in the last two decades, reaching a record deficit in both absolute terms and in relation to the gross domestic product was sobering.

Concerns about current account deficit

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(Any opinions expressed here are those of the author, and not those of Thomson Reuters)

The current account deficit (CAD) which touched 5.4 percent of the GDP is a matter of deep concern. It is well beyond the 3 percent danger mark which was crossed more than 18 months back and caused the rupee to depreciate.

Foreign borrowing or foreign investment?

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(The views expressed in this column are the author’s own and do not represent those of Reuters)

The market’s response to the currency measures announced on Monday was a dip in the Sensex. Much was expected after the announcement made over the weekend by the finance minister. What has been actually initiated cannot make much difference either to the rupee or to growth.

Budget FY 2012: A neutral event

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Finance Minister Pranab Mukherjee (C) arrives at the parliament to present the 2011/12 budget in New Delhi February 28, 2011.  REUTERS/B Mathur/Files(The views expressed in this column are the author’s own and do not represent those of Reuters)

The FY 2012 Union Budget is largely a neutral event:

The Budget provides incentives for increased infrastructure spending along with increased funding sources while highlighting supply side issues in agriculture with an effort to provide solutions.

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