Business Standard / New Delhi Jun 01, 2009, 00:05 IST
The ECONOMIC recovery is not in doubt, its strength is. A few weeks ago, the stress tests by the US Fed suggested a total of $75 bn was required by US banks to recapitalise, and much of this has already been raised, and quite easily at that. Bank interest rate margins are up. But, as the Federal Deposit Insurance Corporation’s (FDIC) report shows, the number of ‘problem banks’ in the US has risen sharply. In other words, the recovery is going to have several ups and downs. Confidence levels in the US, however, continue to rise. The rise in interest rates in the US could threaten the recovery.
India has seen an unexplained surge in FII inflows (speculation is this is black money returning in anticipation of the OECD tightening of rules). This has sent the Sensex surging, along with the euphoria over a stable government. India Inc is making the most of this and every week sees a number of firms rushing in to raise hundreds of crore of equity from big investors. CMIE data shows investment intentions remain buoyant and the order books of leading capital goods firms are strong, though the order-flow has slowed. Quarterly GDP data shows government expenditure is driving growth. Without reforms, however, it is not clear this can last.
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