Should the RBI bow down to govt. pressure?

In this issue: Foreign cos. are slowly leaving India Defence to be a lucrative opportunity Spain to seek bank bailout Employers find it difficult to fill jobs ...and more! -------------------------------- Is the real stock market crash around the corner? ------------------------------It appears to be 2008 all over again... Economies are slowing down. And stock markets are crashing. Fear has gripped investors across the world. And of course, the experts on Television are now predicting doom. Great! This throws up a fantastic opportunity for you... Why? Well, remember what happened after 2008? One of the sharpest stock market rallies we have ever seen! Now, no one can say for sure when the stock markets will turnaround... But yes, they will. And by then a lot of wealth that would have been created. To help you claim your share of this possibly huge wealth creation that will happen in the future some time, we have prepared a very short video... And we recommend you watch this free video right away... (It's available only for the next 48 hours). ---------------------------------------------------------------------------------------------------------------------00:00

Why is it that when India's GDP grew at a lower than expected rate of 5.3%, the first response was the Reserve Bank of India (RBI) should cut rates? True, high interest rates have impacted growth. Manufacturing industries have especially seen demand dive as rates firmed up. But why were interest rates raised in the first place? Because inflation was too high and a tough monetary policy stance was the only way for the central bank to bring inflation down. In all of this, the government conveniently chose to stay on the sidelines. Readers would do well to recall that one of the major reasons for food prices skyrocketing were ineffective warehousing and storage facilities. Thus, despite bumper crop seasons, foodgrains were left outside to rot. Had the government pulled up its socks and attempted to rectify this, the burden of managing inflation would not have fallen solely on RBI's shoulders. So now with the GDP slowing down, should the RBI bow down to pressure and cut rates? If inflation is still a problem then the central bank probably cannot afford to do so. Therefore, it all boils down to what the government chooses to do. And it needs to get its act together. The response so far has not been encouraging as decisions on important reforms

continue to be delayed. After the retail FDI disaster, inability to push through the pension bill has once again exposed the current government's weakness. In fact, Mr U K Sinha, Chairman of the Securities and Exchange Board of India (SEBI) and one of the architects of the country's pension sector reforms, has already expressed displeasure to such stalled reforms. He opines that reforms in various segments could help revive the faltering investor sentiment and economic growth. There have to be major attempts made by the government to push growth through reforms and make life easier for the average Indian. For how long can you continue blaming the global economic problems and RBI's high interest rates? With respect to the latter, there is only so much that the central bank can do. Who knows, maybe the RBI's unwillingness to budge on rates will finally compel the government to wake up from its slumber. One will have to wait and see. Do you think that the RBI's unwillingness to cut rates will finally compel the government to push through some reforms? Share with us or post your comments on our Facebook page / Google+ page.
01:36

Chart of the day

At a time when unemployment is reigning high in developed countries, any mention of vacancies not filling up should be taken with a pinch of salt, right? But that apparently seems to be the case. According to a survey conducted by the Manpower Group and published in the Economist, more than a third of employers around the world are still having trouble filling vacancies. As today's chart of the day shows, employers in Japan were having the hardest time filling job vacancies. The problem seems to be that of skilled labour shortage. In Japan, shortage of talent has largely been attributed to an aging population. India has also not been far behind in this regard. Thus, it is all very well to highlight India's demographic dividend as a key growth driver going forward. But it will have no meaning unless the right skills are imparted which will help people secure jobs.

Data Source: The Economist

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"Chart of the Day" feature. Taking a cue from this, we are now starting to collate our most popular charts in a new section on Equitymaster. We invite you to visit this new section, and share the charts you like with your friends!
02:16

Foreign investment is something nearly every government aims to increase. It helps drive the investment driven growth of the country. But boosting this kind of investment is tough. The government has to instill the confidence in foreign companies that their investment interests would be safe. Unfortunately in recent times India seems to be doing exactly the opposite. The government is doing everything in its power to kill foreign investor confidence rather than boosting it. Therefore, it would not come as a surprise that foreign companies are actually exiting India. The latest to join the list is Germany's Fraport, the world's second largest airport operator. Earlier telecom carriers Etisalat and Bahrain Telecommunications had decided to exit their businesses in India. The reasons for their negative sentiment are the government's policy paralysis and regulatory uncertainty. Add to this the spate of scams and slowing economic growth and the foreign companies are seeing little reason to stick around. The government needs to do something about this. And do something soon. Otherwise the much needed foreign capital is going to leave India and find its way in to other developing markets.
02:57

There is this one industry which seldom witnesseses a recession. In the last one decade, this industry has grown threefold in India. But private Indian companies couldn't make much dough out of it because this space was highly restricted. Can you guess which industry this is? If you haven't guessed yet, we are referring to the defence industry. Did you know India is the world's largest importer of weapons? Of our US$ 35 bn defence budget, about 70% is spent on imports. India is also the 7th largest spender on defence in the world. Last year, the Indian government revised its military procurement policy. This opened up the defence industry to the private sector. Currently, the private sector companies account for just 10% of the defence budget. However, this is set to rise significantly as the government has further revised the rules to the advantage of local players. Several major Indian business houses are vying to grab a pie of this lucrative market. This new opportu nity certainly comes as a big relief for Indian companies that are battling a slowdown in the domestic economy.
03:31

The debt crisis in Europe is getting worse by the day. And now it seems it is the turn of the big boys to ask for help. Spain which is struggling to prop up its ailing banks without asking for external bailout is planning to ask Europe for help with recapitalizing its banks. Spain will be the fourth country to seek assistance since the Euro zone's debt crisis began. The move comes after rating agency Fitch downgraded the long-term debt of Spain by 3 notches to BBB from A, with negative outlook. Spain is forecasted to remain in recession throughout the rest of 2012 and 2013 against a mild recovery in 2013 previously estimated. According to Fitch, the cost to the Spanish state of recapitalizing banks stricken by the bursting of a real estate bubbl e, recession and mass unemployment could be between US$ 75-US$ 125 bn or 6 to 9% of Spain's Gross Domestic Product. The higher figure would be in a stress scenario equivalent to Ireland's bank crash.
04:06

Barring China, Hong Kong and Singapore the world stock markets closed the week on a positive note with healthy gains. The US stock markets were up 3.6% during the week. This was the best ever week for the US stock markets in 2012. As per Commerce department, the US wholesale stock piles grew by 0.6% in April. This was double of what was reported in March. This indicates increased production and resulting demand for the factory output. Markets reacted positively to it as consensus had priced in a lower growth. The Indian equity markets too ended the week with strong gains. The markets were up by 4.7%, having registered the best weekly gains of 2012. Hopes of global stimulus and expectations of rate cut spooked markets. Further, declining crude oil prices and government's commitment to help kick start the stalled infrastructure projects buoyed the markets. Amongst the other world markets, China was down 3.9% during the week. This was despite a rate cut by the Chinese central bank. Apart from China, both Honk Kong and Singapore were down 0.3% each. However, France and UK were up by 3.4% and 3.3% respectively.

Data Source: Yahoo Finance

04:56 Weekend investing mantra "Time is the friend of the wonderful company, the enemy of the mediocre." - Warren Buffett

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