The Reserve Bank of India has tightened the spending belt by raising interest rates. The objective is to curtail inflation which is growing.
Banks reacted quickly to raise their rates too. The common man is left with no choice than to do without loan applications for fear of default.
Banks are keen to lend at higher rates, but there should be takers. As Morgan Stanley recently said, high rates and poor market sentiment were affecting investment demand. This, it notes, will lead to fewer jobs and consumption expediture.
The investment banker has suggested that a way out of the mess is for the empowered ministerial group to clear a bunch of 30 core projects to resume momentum of the economy.
The United States is in a mess. It has taken half-hearted measures to overcome the debt ceiling and the current crisis. The huge spending cuts, mainly involving medicare- a vital segment - is expected to create a negative effect. Severe job losses are foreseen, if not already happening. But the crisis is not of President Barrack Obama's making. It was there in the making even before his arrival. Only the timing of his reaction -so late in the day - is at fault.
Analysts in Mumbai often say that if the US sneezes, it is the Indian who catches the cold. This shows how much we, as a nation, are dependent on a country that has cold shouldered us whenever we faced a crisis.
The report predicts a faill in exports is likely due to the Euro zone instability and the US debt crisis will lead to a downward growth trajectory. In the absence of growth revival, non-performing assets will increase, leading to reduced advances (read loans). This will lead to further stagnation.
It is time for Pranab Mukherjee and his team of advisers to act sensibly. The economy needs another stimulus. The earlier stimulus is gone and forgotten. It is not possible to give a stimulus every time the economy demands it. That itself is a costly affair hitting at the roots of the nation's economy if something goes wrong.
It is time to act fast. If only those at the Centre realised this!
