Those who understand the economic reality of India today would not be surprised by the bold step taken by RBI governor by reducing the Repo and Reverse Repo Rates by 50bps to 8% and 7% but ordinary people who have been anguished by thirteen times hike in rates over the last two years this has come with a bit of surprise.
The latest action seen in the back-drop of CRR cut by 125bps over last few months gives a signal that the cheap money policy will now be followed in future too. Since the inflation is just 6.9% (YoY) in March 2012 , the real rate of interest works out to be on the higher side compared to the other economies of the world. The Indian businessmen have to digest this as India is and would remain an economy starved of capital for some more time .
Indians are great savers but our savings are not much in absolute terms due to income base being low on average. Also a lot of the savings go into buying bullion as this is considered as the best for taking care of family’s needs in bad times. It is not that Indians are not bold enough or do not know to invest elsewhere but the whole trouble is that the governance in India has never been reliable. Whenever the wealth is visible to the state it takes no time to somehow take it away to cover the gaps created by corruption and inefficient use of resources.
I am sure with overall improvement in standard of governance and corruption free environment where inflation is not used as a tool for raising public finance resource , we the Indians will come forward to put each penny of saving to productive use and become a strong nation.
It is with this desire that I advocate shutting doors for foreign capital flows in an unrestricted manner. This is like giving advantage of high interest rates prevailing here to people outside and not let the capital cost be high enough to discourage our own people from investing idle assets. Firstly, we were ruled by foreigner and the capital was naturally shy and then we have been ruled by such people who do not love for country at heart but their own petty interests. Also they do not have far-sight and do not have common vision.
There yet another fact that influences the decision making at the top i e that there are so many layers of society in terms of economic levels and aspirations that the politicians find it hard to arrive at consensus make people understand the need for a policy that will be good for everyone in long term.
Please excuse me for this uncalled for sermonizing. The markets in my opinion do have a reason now to shed bearish stance now. The Nifty has been hovering at around 5250 , slightly higher than yesterday.