Monday, August 24, 2015

Devaluation war - A 'Never Before Chance' to amend Reform Trajectory

With gigantic pressure on Chinese counterparts to make their economy (export driven) look more robust and attractive, a plunge of more than 3% vis a vis US $ (1.9% -  Chinese govts' push and remainder is markets' reaction) has taken the global economies and policy makers by surprise.

Where on one side US Fed's rate hike was a talk of town, suddenly we have another mega event which has been doing some rounds now across global markets, and that is the "Currency War" which may get trickle down to a situation where economies challenge each others currencies' devaluation for no good. But what happens now? What should India do now? And, why is this a 'Never Before Chance' for a country like India?

With a massive demographic advantage and with lots of push by the GOI (Govt. of India) to enable the Small and Medium enterprises to become a viable business proposition, focussing on this segment more would be of ultra importance. Just launching of schemes and formation of institutes like MUDRA would not make a massive difference but hand holding these small entrepreneurs will. India as an economy would get a much required impetus to touch that 8-10% GDP growth target YOY if and only if we can incubate these small ideas. A logjam in our Parliament would only add insult to injury. Scumming to opposition's' tactics would only drag our last chance to be a responsible superpower on this globe.

Inflation; both Wholesale and Consumer Price Index are under control, crude is dripping below its lowest lows in past few weeks and being a mega importer of energy we are in a comfortable Current and Fiscal deficit conditions, hence, waging a currency war with other global currencies would not be feasible option for India. It would increase our fuel bill and dent out low deficits. Putting us in a catch 22 situation. This situation demands a more focussed domestic approach. Push GST, break the democratically hurting logjam, consensus on Land Acquisition Bill and capping the NPAs is the way we should focus more on.

Chinese government's' acts /US Fed's rate hike/ drag in commodities prices can dent us and impact our economy a bit but to keep the adrenalin running we need to have a stable domestic economy and reforms' agenda running without any man-made disasters(Parliament Logjam). Investors know where to put their money (India is still the most preferred destination among the other BRICS nations) but being responsible is the call of an hour.