The financial Tsunami is now on full fury in India with a 1000-point explosion in stock market taking the BSE Sensex down to 8701 at the closing on Friday the 24th October’08. Not only this, the rupee has touched a historic low at Rs.50 plus a dollar. In spite of cut in CRR by 2% from 8.5% to 6.5% by Reserve Bank of India in a matter of 10days in October and increasing the liquidity in the banking system by 80000 Crores (17bn USD), the free fall of stocks continued the whole of October’08.
Putting it the other way round, the Indian Prime Minister Manmohan Singh said, at the Seventh Asia Europe Meeting that international financial crisis is beginning to have grave impact on India for no fault of its own. Although Singh lost no time to remind that the Indian Banking system is in fine shape and the growth of the economy would be about 7.5 to 8 percent.
Accepting the fait accompli on the severe down turn in stocks and fall of the rupee against hard currencies, Singh said, “Our stock markets and the exchange rate of the Rupee are under (great) pressure due to outflow of foreign institutional investors and….. the economy is bound to experience pain."
The economy is still reeling under 11% plus inflation. But the heartening fact in India is that whenever inflation rises, the banking system jumps into the fray raising the interest rates on its financial products, particularly in term deposits to give a sort of social cushion to retired and the needy Indians. For example the present bank interest rates are ruling between 10 to 11.5% for medium to long-term deposits. SBI is offering 10.5% (11% for senior citizen) for 33months and ING Vasya, a private sector bank is offering up to 11.5%.
The inflation is also projected to smoother at 7 to 8% by the end of this fiscal in March’08, mainly due to down trend in crude prices hovering around $60 per barrel and a good monsoon helping the food and farm output. The second quarter corporate results of most industries so far continued to be good and a big downturn does not seem to be in the offing in the third quarter, particularly if inflation eases considerably as projected.