A confluence of bad news has hit the Indian economy.
Recently, India's fourth quarter GDP numbers came in at 5.3%. While many people were shocked (or atleast pretended to be), it was quite expected. I have always been critical of the RBI raising interest rates and choking growth. At that same time some of my favorite analysts were of the opinion that the RBI was moving in the right direction and that India would have to go through some short term pain to see a longer term gain. Now that the rate increases have ceased, we can see how the entire cycle played out. Like I mentioned before, once growth stops, it is really difficult to start it up again.
I still maintain that the RBI should have kept growth going and should have treated the high inflation as an aberration caused due to excess external money flowing into India. Of course, the RBI is quite aware of the impact of the interest rate cycle. In a recent conversation, RBI Deputy Governor, Subir Gokarn said that the contraction in growth was expected, thus proving this point.
I agree that the RBI still has the tools in its bag to kick start growth again - now, when some of the developed countries will begin to slow down. But, the question to be asked is - did we have to go through the pain?
We have also been tracking the fall of the Indian Rupee against the US Dollar. After a steep run-up, the charts have lazed into a consolidation. We have to now wait and see what the next move would be.
We saw Foreign investments drying up.
The Government is also being blamed for not pushing through any major reforms. But then again, we did not have any ground breaking reforms even from 2005 through 2008 when we grew over 8%. The moral of the story here is that capital inflows have a major bearing on the Indian markets and the Indian economy - more than some reforms can have on the economy.
Is this the end of the story for the Indian economy?
Actually, no! It has been seen historically that the economy bottoms out roughly three to six months after the first rate cut after a series of rate hikes. To support this, we also have lower Crude prices, a stabilizing or possibly strengthening Rupee, a Government that is desperate to push some reforms through and a Central Bank that has to look at stimulating growth.
All things that had to go wrong went wrong. Now, we should hope that a bottom is formed soon and then things start looking up ... well, at least till the next big disaster strikes!
It is time for us to be more sensible and practical with our thinking rather than get emotional and lose our minds over issues that are trivial.
Till next time ... happy investing!
Recently, India's fourth quarter GDP numbers came in at 5.3%. While many people were shocked (or atleast pretended to be), it was quite expected. I have always been critical of the RBI raising interest rates and choking growth. At that same time some of my favorite analysts were of the opinion that the RBI was moving in the right direction and that India would have to go through some short term pain to see a longer term gain. Now that the rate increases have ceased, we can see how the entire cycle played out. Like I mentioned before, once growth stops, it is really difficult to start it up again.
I still maintain that the RBI should have kept growth going and should have treated the high inflation as an aberration caused due to excess external money flowing into India. Of course, the RBI is quite aware of the impact of the interest rate cycle. In a recent conversation, RBI Deputy Governor, Subir Gokarn said that the contraction in growth was expected, thus proving this point.
I agree that the RBI still has the tools in its bag to kick start growth again - now, when some of the developed countries will begin to slow down. But, the question to be asked is - did we have to go through the pain?
We have also been tracking the fall of the Indian Rupee against the US Dollar. After a steep run-up, the charts have lazed into a consolidation. We have to now wait and see what the next move would be.
We saw Foreign investments drying up.
The Government is also being blamed for not pushing through any major reforms. But then again, we did not have any ground breaking reforms even from 2005 through 2008 when we grew over 8%. The moral of the story here is that capital inflows have a major bearing on the Indian markets and the Indian economy - more than some reforms can have on the economy.
Is this the end of the story for the Indian economy?
Actually, no! It has been seen historically that the economy bottoms out roughly three to six months after the first rate cut after a series of rate hikes. To support this, we also have lower Crude prices, a stabilizing or possibly strengthening Rupee, a Government that is desperate to push some reforms through and a Central Bank that has to look at stimulating growth.
All things that had to go wrong went wrong. Now, we should hope that a bottom is formed soon and then things start looking up ... well, at least till the next big disaster strikes!
It is time for us to be more sensible and practical with our thinking rather than get emotional and lose our minds over issues that are trivial.
Till next time ... happy investing!
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