"It takes a great deal
of bravery to stand up to our enemies, but just as much to stand up to our
friends."
—J. K. Rowling (English,
1965-)
Word for the day
Gerontocracy
A state or government in
which old people rule.
Malice towards none
Ravan was son of a Brahmin
and devotee of Shiva!
So what's the point?
First random thought this morning
While Baba Ramdev was kept busy fighting war on MNC tooth paste,
confectionary and cosmetic brands, the global mobile phone makers (mostly
Chinese), automobile makers, and readymade garment sellers have
"plundered" billions from "gullible" Indian consumers.
Moreover, even on cosmetics, hair oil, ayurvedic products like
Chyvanprash etc., confectionary and grocery etc. also, Baba may be competing
more with pure domestic players like Dabur, Emami, Parle, LT Foods, DFM,
Baidyanath, Marico, etc., rather than P&G, Colgate and HUL.
Should someone call his bluff and restrain him for carrying out a
mostly misleading campaign?
"To cut" or "To raise"
When the members of Monetary Policy Committee (MPC) of RBI meets
today for the Fifth Bi-Monthly review of monetary policy for FY18, the question
before it might be "to raise or not to raise" rather than "to
cut or not to cut".
An overwhelming majority of experts is forecasting a status quo on
rates.
A near unanimity amongst forecasters over the likely decision of
MPC on policy rates is rather unusual. Overwhelming consensus on any issue
involving human intervention always bewilders my strategist mind. Consensus on
economic issues is even more perturbing as it is against the basic concept of
market.
In my view, MPC is presently faced with unprecedented complexities
in policy making. Though the stated objective is to manage inflationary
expectations, MPC must deal with prospects of worsening twin deficit, slowing
growth and likely global liquidity and rate events.
As the recent GDP data (2QFY18) showed that Private consumption
growth (6.5% in Q2) was weakest after Sep 2015 despite festive season and some
pick-up in rural demand. The consumer confidence pointed that the urban
consumer sentiment has stayed weak over this period, which suggests that the
impact of 7th Pay Commission has mostly been digested, and a decent stimulus
may be needed to encourage private consumption.
Government consumption growth dropped sharply to 4.1% in Q2 (17.2%
in Q1) as fiscal deficit concerns prompt some belt-tightening. The rate hike by
some banks on bulk deposits amply highlight the tight liquidity conditions.
This tightness in my view is mostly due to the government's fiscal management
jugglery (delay or deny tax refunds, delay contractor payments, delay subsidy
payments and defer consumption and investment). This will reflect badly on FY19
fiscal, which may face political pressures also as general elections draw near.
The 4.7% growth in investment demand (GFCF) was the best in 5qtrs
but as a proportion of GDP it remains ominously low. Given the still very low
capacity utilization level and fiscal constraints, the visibility of investment
demand recovering in FY19, without a significant stimulus, appears low.
The stimulus in turn will depend on improvement in revenue
collections, which may largely be a function of consumption growth and revival
in export demand. Exchange rate may play a critical role here. Many experts
believe that a more than 10% correction in INR value would be needed to improve
the competitiveness of our exports.
While the need for a monetary stimulus (rate cut) may appear
overwhelming, as the finance ministry officials have also been insisting, the
specter of inflation is rising (may rise aggressively if INR depreciates 10%)
and trajectory of rates in global markets is no longer heading south.
So, my sympathies with MPC, especially the market economists sitting on the
committee, who would obviously want an aggressive easing.
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