Much hype was being made about the stability of the Indian Economy in the face of meltdown in USA. As if ‘nothing to worry, this is India’ type of sentiments were being expressed by Finance Minister of India and other financial stalwarts. But ultimately every thing went in vein. The financial Tsunami has finally started to arrive in India with deadly effects.
Today’s morning papers were buzz with retrenchment or lay off of 800 and termination notices to another 1100 employees by Jet Airways to ‘save the company’. This is about 15% of the company’s strength.
The banks, on then other hand, started liquidating their stakes in mutual funds to augment credits, which was hamstringed by continuous increase in CRR from 5.5% in Jan’07 to 9% in as let as July’08 by Reserve Bank of India (RBI) to cope with 12% plus inflationary pressures.
Retail investors further aggravated the pressure of redemption on mutual funds as they started parking money in fixed deposit instruments of banks for sure return of as high as 11% to 12%. The situation of let became so much volatile that the negative return mutual funds seemed have lost meaning.
This made the RBI to press the panic button and it started increasing the market liquidity and in a short span of 10days (October 6, 2008 to October 15) it reduced the CRR by 2% making it 6.5%, thereby injecting 80000 crores (17 billion USD) cash into tthe financial system.
Finance Minister P.Chidambaram also provided other painkillers like releasing 25000 crores (about 5 billion USD) for farm loan waivers and 20000 crores (about 4 billion USD) for the mutual fund support to the banks to augment credit. Even, the maximum interest rate on NRI deposit was increased by 50 basis point to stop flight of cash.
However in spite of all these pills and likes of these, the stock market outlook remained bleak as stocks plummeted sessions after sessions in this month, resulting in the Sensex closing at about 10600, just half the value it has at the beginning of the year.
So the financial Tsunami has finally arrived in India and at test are the wits of the Government and the financial system and stability in the face of much hyped GLOBALIZATION.
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