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Reforms on despite the budget - Views on News from Equitymaster
 
 
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  • Jul 15, 2009

    Reforms on despite the budget

    The stock markets had given thumbs down to the budget, as it lacked any clear signals for economic reforms. In what seems like a damage control exercise, the Finance Minster Pranab Mukherjee assured everyone yesterday that the reforms are definitely on. He has also promised return to fiscal prudence as soon as the crisis is over and a roadmap for disinvestment.

    Mr. Mukherjee has said that while the government's borrowing programme was vital to supporting growth, the debt would not be monetised. He said that monetisation (refers to the printing of banknotes by central banks) occurs when the RBI lends to the government directly. As of now, the central bank will support the government through its open market operations. As for disinvestment, the Finance Minster has said that he is in talks with other ministries for finalising the list of public sector units for divesting the government's stake.

    The government has so far signaled a great deal of emphasis on the aam aadmi. While the minister's assurances are welcome, it is finally action that counts. We have nothing against the 'aam aadmi' stand, but we hope it is not used as an excuse for stalling genuine reforms that are critical to improving the standard of living of the same 'aam aadmi'.

    Recovery has begun slowly, says Roubini
    Nouriel Roubini, the man who famously foresaw the global financial meltdown, says that the economy is beginning to make a recovery. He writes in his blog - "After the sharp contraction in economic activity in 2009, growth will reenter positive territory only in 2010."

    However, he warns GDP growth is not the only metric to measure recessions. "Unemployment, industrial production, real manufacturing, wholesale retail trade sales and real personal income (less transfer) are all considered", he says.

    As such, while the GDP will stop shrinking at the end of 2009, it will not be at least till mid 2010 before the other indicators turn positive.

    Talking of recessions, we are reminded of what Warren Buffett had to say about stock picking during bad times - "You don't want to not buy stocks just because business is lousy at the time. That may be the very best time to buy stocks. In 1954, the Dow was up 50% and the country was in a recession. It was the best year I ever had in my life. And I've had other good years in recessions, so you don't want to say, it's a big mistake to say business is bad therefore I shouldn't buy stocks. That usually is the time to buy stocks."

     

     

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