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On This Day - 21 SEPTEMBER 2012
How vote bank politics will drown India?
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But we believe that her step to oppose the price hike will particularly make oil costlier than before! And this will hurt the people even more. Let us explain how. We know that oil is bought and sold in dollars. Before the reforms Indian rupee was lingering at 55 odd levels to the US dollar. However, once they were announced Foreign Institutional Investors (FIIs) started pouring money into India. As a result, rupee appreciated. And appreciating rupee effectively reduces the import bill of India. That's because the oil marketing companies would now have to shell less in rupee terms to buy the oil.
But the rally in the rupee was short lived as stiff resistance came in from the key ally. Thus, market lost faith in the reform process. And rupee settled at earlier levels. In fact, it might depreciate even more from here amidst capital flight. Thus, Mamata's steps will not only bloat the oil bill but will also impact the rupee. This will widen the trade deficit. Not to mention that the fiscal deficit will expand further. Opposing FDI in retail will also deprive India, of much needed foreign capital. This will hurt the investment climate in India.
We believe that opposing reforms under the garb that they are anti-people will do no good to the nation. Tough steps have to be taken to bring economy back on track. But India's coalition politics is making things difficult for the government.
Well, it's amazing how the US Fed and its bunch of officials live under the belief that the economy is a well oiled machine that responds to the pulling and pushing of certain levers. Nothing could be further from the truth though. This whole monetary experiment that the Fed is conducting is fraught with risks. And thus could easily go out of hand without giving the policymakers enough time to react. Sooner they come face to face with this reality; the better it will be we believe.
Kirana stores typically enjoy location advantage and customer loyalty. However, they cannot compete effectively with big retailers on some fronts. For one, big retailers buy goods from suppliers in such huge quantities that they are able to negotiate better pricing terms. This, in turn, can be passed on to the final consumers. Big retailers provide ease of shopping and have a wide variety of goods and brands on offer. Given the limited space, this is difficult for kirana stores to replicate.
On the positive side, FDI in retail would bring in the much needed investments in logistics. It is mandated for foreign retailers to invest at least 50% of the FDI component in back-end infrastructure. This will certainly help reduce wastage and bring in efficiency into the system. On the negative side, big foreign retailers would affect the business of kirana stores as the latter would not be able to compete on the cost front.
At the same time, policy paralysis, lower lending to smaller firms, etc have hurt domestic growth. Squeezed from both the side, the red nation is facing tough times. The need of the hour for them is reforms. Hopefully their government would realize this and enact the same. Otherwise they would be looking at bad times for quite a while. Unless they decide to give another booster shot in the form of a stimulus package. That would help things in the short term but long term problems would continue to prevail.
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