6 weeks is a short time, very short indeed, if you are considering the macroeconomic situation in India at least. The last six weeks have demonstrated how from virtually the onset of economic crisis, the macroeconomic situation recovered, so much so that the benchmark SENSEX is close to breaching the highest points recorded in history. There is a sense of confidence in the Finance Ministry and the RBI. Confidence is certainly commendable, but it must not turn into complacency.
With the passing of Banking Laws (Amendment) Bill, the RBI has got the power to issue new banking licenses in order to encourage financial inclusion as well as allow for more penetration of banking services to the public. This move is seen as a game changer in the banking sector with India’s largest business houses as well as NBFCs set to apply for new licenses. But, along with this development comes a greater responsibility for RBI to check the credibility and usage of funds by license nominees in order to regulate the function of new banks so that they do not deploy funds to risky assets or for personal business interests.
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The government of India has a major problem to tackle this financial year- Fiscal Deficit. It has tried all possible means to reduce the deficit to the acceptable level. Subsidy bill are a major part of government spending in India. So GOI is now determined to reduce the subsidies on diesel. It has now agreed to deregulate the prices of diesel in a gradual manner. So is the case with LPG cylinders. These steps suggest the desperate need of the government to bring its spending below the threshold. Another important step that has been taken is disinvestment of PSUs.
In recent times we have seen many regulatory issues coming up in our country. Many regulatory decisions such as 2G allocation, coal blocks allocation have been questioned. These are natural resources. The Supreme Court cancelled 122 2G licenses thereby questioning the government’s allocation process. This cancellation has also affected the foreign investor sentiment thereby affecting the economy. The foreign investors are wary of investing in the country because of confusing regulatory norms. Also, coal block allocations done to many firms are under scanner after the CAG report on some wrong doings in the process.
We have witnessed a slew of depressing data about Indian economy in the last three months. Pick any macroeconomic data and you are bound to get a negative feeling about economy and uncertain future. Fitch and S&P revised India’s credit rating outlook to negative from stable whereas Moody’s reaffirmed credit rating outlook to stable.Future looks quite uncertain and direction will depend upon supporting policies by political class.
In the month of March, there was a lifeline for economy of the Greece when countries like Germany, Finland and others agreed to make a €130 billion bailout for the country. But now when the results of the election have come up on 6th May and both the coalition parties unable to garner a majority and having a hung parliament, there are talks going on for bailout re-negotiation. Greece’s euro-zone partners agreed to release only €4.2 billion ($5.5 billion) in previously agreed financing, to be paid out Thursday, holding back €1 billion at least until June. That would be paid only if Greece keeps to pledges it made to secure a bailout.
Q4 has been good so far for Indian Capital market. We have observed upward movement of Sensex.In this issue, we have covered Indian economy growth in comparison to global growth, Euro crisis austerity measures and introduction of new acronym ‘CIVETS’.
2011 has not been the best of years for world’s economy. Both developed and developing part of globe struggled to sustain the growth. It all started with frequent bad news from Euro Zone, followed by declining growth rate back home. Outlook for year 2012 also seems to be uncertain.