The only best thing in Indian economic and political environment is very low tolerance to deteriorating macro indicators like Inflation, external imbalances, fiscal deficit and so on for last two decades. However, off late these resolves are getting diluted to band -aid approach. Earlier government used to loose elections on the basis of high and volatile onion prices. Now, consumers are taking things in stride and unwilling to come out on street.
Gone are the days when spiraling food prices would attract government to act decisively against speculators and hoarders or to resort to import or open market sales. None of the such events are visible now a days to control prices of the ever increasing food prices for last 5 years. Top it all, Government has even failed to acknowledge the severity of this issue and yet to launch any decisive program to improve sustainable increase in the productivity and supply chain.
The best thing happened in terms of to control inflation & inflationary expectations is that RBI has included CPI as an anchor point along with WPI to decide interest rates. This is a welcome sign so that savers will be getting, let us hope, real positive return going forward. So far we have been ignoring persistent high consumer inflation under the guise of lack of proper consumer price time series. Kudos to RBI, that they have recognized that it is high time to recognize general spiraling of prices and consequently raised policy rates twice.
India is also facing music on account of all time high Current Account Deficit (CAD). High CAD was persisting for very long period of time, however, we chose to ignore it. Come May 2013 and when US - Federal Reserve ( FED) has made its intention to reduce quantitative easing, all hell broke loose in the Fragile Five countries, which were running high CAD, Viz.. India, Turkey, Indonesia, South Africa & Brazil. These countries experiences high interest rates, multi / all time low local currencies against USD and flight of foreign capital during last five months. Again India could not envisage to reduce the high CAD to manageable levels within time. Ultimately we have to resort to old practice of reaching to our Non Resident Indians (NRI) to bail us out. The key point here is that are we ready to face reduction in quantitative easing as and when it starts? The answer is very difficult. We have just bought breathing time to put in place to improve our exports, control unwanted imports and to make India as a preferred destination for foreign capital. Alas, there are hardly any attempts to act on any of them. Thus, there is a possibility that India would be facing music again in short to medium term.
The key point is that quality of decision making as well as response time has deteriorated in our society at all levels in last so many years. Thus we would be living hand to mouth, in case, we choose to tread the current path.
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