StatsGuru 07-July-08

A few months ago the consensus view was the economy would grow at 8 per cent or so. Indeed, when the RBI tried to raise rates to deal with incipient inflation, the finance ministry felt this would hit growth and encouraged banks to keep rates low. Today, with the intensity of inflation catching everyone by surprise, and the global oil spiral likely to make things worse, the RBI is likely to continue to hike interest rates and the CRR "" the growth picture looks quite different from earlier. Compounding things, the fiscal deficit is almost back to 1991 levels, the April-May trade deficit is around 50% higher than last year, and the stock market has fallen a third since January, making it the worst-performing in Asia barring China. There are, of course, stray pieces of good news "" the Goldman Sachs' India Surprise Index is up and the ABN Amro Purchasing Managers' Index is at a six-month high suggesting things are not all gloomy. Bankers report while there are less new investment proposals, the existing pipeline is strong enough. The big fear, however, is that interest hikes will, as in the mid-90s, kill the economic momentum. We study the two situations and conclude the economy is on a stronger wicket this time around.

 

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