The declining value of rupees, the losing points of Sensex, high inflation rate, slowdown in GDP, these all seem to bode evil to the entire Indian economy. In the current scenario the whole world is suffering from the so called “recession". Indian government has repeatedly announced that Indian economy has got very strong fundamentals and it will not be affected at large scale by this global downturn. But a deep sense of disparity is prevailing everyday and this is being reflected as Sensex is losing points day by day. AT the time i am writing this, Sensex is at 8701.07 , a level last seen in -------(In fact I don’t know , as this field has lured me very recently so i don’t have the records) .
Markets do fail often, but the governments intervene and try to solve the problem. Indian government is also trying hard to stabilize the market but still there is no sigh of relief in the market. The question is why?????
[Before i proceed i should tell you that i am not an economist. I am final yr. Btech student and these are not my original thoughts. These ideas are taken from the column written by Dr. Sengupta . i thought it would be better to know all these things those who missed that column]
The fault lies in the conventional approach of our government. But this time a different approach to the problem is required.
The RBI is trying hard to provide enough liquidity in the market. It has reduced the CRR rate and thus has released a huge amount of money which it had withdrawn few months ago to control the inflation rate. But injecting money alone will not increase bank lending unless borrower have the confidence in our economy to induce them to invest more. Also the bank lending money do not have confidence that borrower would be able to return it. So Overall the missing element is "Confidence". Investors do not have confidence in the sustainability of economy, as a result they have become skeptical and they are stopping investment in our economy. On the other hand lenders do not have confidence that they will get their money back. As a result liquidity provided by the RBI is trapped. It is not being used in investment expenditure and result is in front of us.
In such situation, the government has to take steps to increase the confidence in the system, and provide a stimulus to private investors. When private investors are reluctant government should initiate the public investment for stimulation. We have a large number of PSU's functioning well. If the public sector will start in infrastructure it will give a stimulus to private investors.
The money required for this can be provided by the government either by cutting some expenditure on other less important side or it can be generated openly by the government borrowing directly from reserve bank. The effect will be increase in liquidity along with the confidence.
Our fundamentals may be strong but the confidence is grossly eroded. So government should take strong measures to instill confidence among investors. This should be done quickly before the situation deteriorates further and gets out of hand.......
[Again I should remind you that these are not my ideas. ]
Investment for Rest half (2012)
11 years ago
