India: G-20 and beyond

Monday, November 17, 2008

The G-20 meeting is over; excellent food, great speeches, but really Nothing new. Investors were blamed for taking too much risk...Not a single investor has come for a bail-out from any government...So the message has changed from Buyer beware  to  Do not buy for we know not what we sell.

Here is the text of the G-20 communique: It was available on November 10, 5 days before the meeting!

Washington's meeting did not give rise to anything...George Bush looked lost...he did not say "you are with us or you are against us".  That set the tone...everybody just talked their head off...said everything they have been waiting to say for a long time...and the US said despite everything, our system is still the best...and everybody agreed.

So where does that leave us.  RBI put in more emergency liquidity measures over the weekend and said things are worse.  The Government is bumbling along confusing everybody ...PM says this crisis has created the worst economic climate since great depression, FM says we cannot just lower rates because inflation is still 9%.

RBI did lower the weighting for commercial real-estate loans from 150% to 100% for Bank Capital adequacy purposes.  The credit available for commercial real-estate just jumped by 33% for the same amount of capital.  Good is the time to increase leverage.   The time for prudence has passed...risk taking will be rewarded in the coming economic climate.

Government and RBI should use every possible measure at their discretion...too much, too soon is much better than too much too late.  Lower SLR, CRR and Repo rates.   Without delay.  And the government should start an infrastructure creation drive, NOW.  Everything is cheap...commodities and services.

Astonishing that our Finance Minister is still fighting inflation....Mr. Don Quixote.

Commenting on the decline in inflation to single digit -- 8.98 per cent -- after five months, he said, "I don't think we should get too excited about the single digit inflation as it is still close to 9 per cent, much above our tolerance level...

"We would like the inflation to come down. We hope it will happen in the next few weeks, so I think we are jumping the gun when we are talking about a rate cut."

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