NEED TO STIMULATE INDIAN ECONOMY FAST

To save from the effect of down turn of Global economy it would be necessary to stimulate the Indian economy in a sustained and disciplined manner from now on ward.The Government of India has taken some measures. The RBI has also taken some strong measures of monetary control. But these are not enough.I must admit that the RBI's steps to reduce CRR and repo rate are good but not enough. These steps should have been take much before. According to me there are further scope to reduce the repo rate to ease the liquidity situation and to stimulate the growth rate of the economy.According to me Government alone cannot stimulate the economy.The trade and Industry have also responsibilities to reduce price of their products. Realty sector is suffering but have not yet reduced per square feet rate. why? The cost of steel and cement have come down. Why would not builders bring down the per square feet Price? If Government of India is sanguine that a further stimulus are necessary there should not be any reason to delay the further bringing down of repo rate for empowering bank to stimulate growth. The argument put forward by Rahul Bazaz that price cannot be brought down is not tenable. Automobile sale will boost if adequate price cut is initiated. If it is not done voluntarily the market dynamics would force to bring it down after sometime.

Yes it is a fact that the inflation has come down to a single digit figure. It is no mean an achievement. According to our calculations the inflation, despite reduction of interest rate ,would further come down due to better availability of farm products during January and February and would remain low till the month of March 2009. However it is expected that inflation may overtake the economy again in the April, May and June in case Monsoon fails. Perhaps inflation would further comedown to 7.5% in the months of February.

However we are not very sure that growth rate would stick to 8.5% during the last few months of the year.The finance Minister has been stating that he expect a decent rate of growth in current financial year. We do not think so. Despite the fact that there are only four months to end the year it would not be possible for the economy to hold high growth rate. The turmoil of the world would manifest in Indian economy now. There is no reason to believe that the Indian economy would remain decoupled from the impact of the global down turn. No economy in the world can stand alone now especially those economy who has direct link with the economies of Britain and USA.Even India would get backlash of the recession of Japan. The export to Japan whether it is iron ore or tea would surely be effected. Less and less of business persons from abroad would visit India during these four months. Indian Hospitality industry used to make hay during these months. These industry would suffer due to impact of less number of visits by executives from abroad. These four months are crucial months for hospitality industry and tourism industry. These two industries would be bound to suffer during this period.It is time for hospitality industry also to bring down the price of their product.It is understood that Hospitality industry is contemplating to bringing down price soon.On our current forecast, GDP growth is poised to fall to a seven-year low of 6.0 percent in 2009/10, from an estimated 7.2 percent in 2008/09.
It is understood that the government imposed a 5 percent import duty on a range of iron and steel products, and slapped a 20 percent duty on crude soybean oil imports to protect domestic producers in the face of falling commodity prices. This is a commendable act. Similarly Government must bring pressure on the realty sector and auto sector to bring down the price instead of giving indirect incentive to the prospective customers. The reduction of price in the basic cost structure would provide higher incentive to customers due to cut in tax etc and that would stimulate sale of automobile instantaneously. The RBI also advise banks to bring down the rate of interest of Housing loan too so that more and more people are interested to build houses,apartments and condominiums.( To stimulate growth Government of India may consider nil interest to certain sectors in line with Islamic banks of Dubai). Once the housing loan( in 2004) was 7.75%. It is now 10.75%. I would like to urge that RBI should bring down further repo rate soon with an understanding that both housing loan and auto loan interest would be brought down further by 100 basis points i,e. to 9.50%. This would ensure lot of activities and would stimulate growth.

Foreign funds have withdrawn $13.1 billion from Indian shares this year, adding to pressure on the rupee which is also weighed down by a widening trade deficit as export growth slows.Chidambaram, our finance Minister recently said that,India, Asia's third-largest economy could miss its annual export target of $200 billion for this fiscal year as the slowdown in developed nations trims overseas demand. Despite the fact that Government of India feels that the growth rate would remain high during this financial year and the next year would seen much better growth large number of our economist friends believe that the growth rte end up in 7% in this year and the next year's growth would not be substantially much higher.It could go up marginally.
It is understood that in G 20 meeting there was complete unanimity among the participating countries on the need for a co-ordinated fiscal stimulus. The fact that the group had agreed to meet again in April means that the new administration in the US would be involved in the action plan.

It is further understood that while regulatory changes would be implemented at the national level, global bodies could be tasked with oversight.

Dr. Ahluwalia Deputy chairman of planing commission mentioned about providing a counter-cyclical fiscal stimulus to the economy and said government should step up its investment in infrastructure. We entirely agree with this suggestion. The country must step up development of infrastructure for the sake of multiplier effect on sustained growth of the economy.It is true that normalcy in markets would return only when the people are confident that no further collapse in the financial system is likely.

The hope of the Government that there won't be any job losses in the economy as a whole, would remain an illusion. Despite the fact that some of the business houses responded to the prime minister appeal not to affect the job cuts the economic slow down have already taken the toll on unemployment. Employees have been asked to either accept pay cut up to the extent of 30% or to stay away for a period a three months with half pay. In certain place like Bata, in SahagungBihar, agreed but workers revolted. This kind of arrogance would bring in catastrophe not growth. The employers would be forced to declare suspension of operation, which would be counter productive for all concerned.In case depression & deflation need to be prevented immediate actions as stated above must be taken forthwith by Government, Industries and workers.

It is true that our country is in a better shape, compared to Europe and Japan now, but unless positive measures to boost the economy are taken by all the stake holders the global turmoil would overpower our country' economy and there would be no escape route than to take care and revive the economy. I have complete faith on the new economic team headed by Dr. Rajan and his vision of growth. But measures should be crystallised soon and implemented effectively.

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