Stimulus package completed?

Remember? I had written about the stimulus package on december 4th. After that I thought that I should take a break in posting data. The entire package came in two stages and now the petrol and diesel prices cut will also come in two phases. Indian polity probably does not believe that the current slowdown is for real therefore the speed of response is that slow.
All through Indian contemporary history economists have derisively chided our economy and called it the hindu rate of growth.
Let us spend some time on this phenomenon of hindu rate of growth.
Indian inaction is legendary by now. Inaction in war, inaction in peace and inaction in strategy. One of our erstwhile Prime Ministers famously quoted "deciding not to do anything is also a decision". Our politicians, most of whom are lawyers are used to biding time and asking for adjournements in courts of law. They bring this innate trait to the governance table and wish away the problems thinking that time is the greatest healer. Since these lawyers are used to asking for time and biding time theie cases and thier governments bide time till the defendant or in this case the economy dies on its own.
Economies do not die as people have their own ingenuity for survival. They somehow survive based on their "jugad" (thats the hindi word for improvisation). This "jugad" keeps the Indian economy from going to the ruins. Since, government is ambivalent about the economy the entrepreneurs themselves find ways to prosper. This leads to slower growth with no incentive to grow faster and farther.
That's why we have the hindu rate of growth. India was pushed by the IMF to liberalise, privatise and globalise its economy as the economy was in trouble, now that the troubles are over and as our ex-FM said "A finance minister of any country would be ready to give his right hand for a slowed down growth of 7% in GDP". Complacency has set in, Government is counting months in power, elections are around the corner and government bides time letting prices to go south (PRICES ARE NOT GOING SOUTH BECAUSE OF SUPPLY AUGMENTATION BUT BECAUSE OF REDUCED CONSUMER CONFIDENCE AND REDUCED EARNINGS) thinking that lower inflation will be good for a return to power for the ruling alliance.
The ruling alliance needs to know that people of India want action not inaction. With the proliferation of communication networks, it is impossible to gag people and run the government on rumour mills and PR programmes. Decisive action is needed and it can only come from men of action. So where are our men of action can anybody stand up to be counted?

Back to Business?

After the attacks and the aftermaths of the attacks. The Indian business community seems to be coming back to its usual business along with the regulators. The RBI is expected to cut rates further during the weekend. What are we bargaining for? Are we saying that as debt becomes cheaper growth will pick up? Inflation was reported to be 8.4% for the week ending November 22. with repo rate at 7.5% we have a negative real interest rate of 1.34%. If we continue to have negative real interest rates then the Rupee will keep on depreciating until either inflation comes below the repo rate or the repo rate goes above the inflation rate. Both seem impossible, looking at the thinking in the minds of the "Powers That Be".

A new thing brewing is the scheme of using $10 bn of forex reserves to finance infrastructure projects in India. Extracts of the scheme being thought of is as follows:

"Under the proposal now being finalized, RBI will use up to $10 bn from its reserves to buy bonds issued by foreign subsidiaries of the Indian Infrastructure Finance Corporation Ltd (IIFCL). The subsidiary will then bring this money into India and the parent company will use the rupee resources thus generated to lend to infrastructure projects. The scheme is being seen as serving several purposes apart from giving IIFCL more funds to lend to infrastructure. First, when IIFCL sells the dollars back to RBI, the central bank will end up adding to the supply of rupees in the system, thus easing liquidity. Second, dollars that would otherwise have gone back to the US to buy US treasury bills will remain in India, thereby adding to the supply of the greenback and help in counteracting the depreciation of rupee. It is proposed that IIFCL will use this money to lend to banks at 9%. Banks will on-lend it to companies executing infrastructure projects at around 11%. However, in this case banks want government to ensure viability of such projects since a two percentage point spread would otherwise not make commercial sense for them. Apart from this, RBI will be asked to extend a line of credit of Rs 10,000 cr to the Small Industries Development Board of India (SIDBI) to lend to small scale units at 8%. RBI will lend these funds at about 6% to SIDBI. A similar Rs 10,000 cr line of credit will also be opened by RBI for the National Housing Bank (NHB), which provides refinancing facilities to housing finance companies. NHB will be asked to lend to housing finance companies at rates of around 6-7% so that they can provide home loans to the ultimate consumers at around 9%. This, it is expected, will help revive the demand for housing that has gone down sharply in recent months. The proposal to allow NBFCs to access external commercial borrowings (ECBs) is also likely to come through. The government believes that some NBFCs have credit lines tied up with foreign lenders and could easily bring in money if they are allowed to do so."

This means that another Rs. 75000 cr being poured into the market. This money seems to be directed specifically at the target. This should spur growth specifically in private infrastructure and housing. Only thing we need now is spending on Government Infrastructure. We only hope that the government starts talking about investing on infrastructure.