Page 4 - IACC Newsletter August-September 2013 Issue 13

Basic HTML Version

President’s Message
The third quarter growth of the US economy at 2.8 per cent is significant from the Indian perspective as well. One, that
growth, which outpaced the estimates, signals that the beleaguered US economy is coming out of woods. The additional
employment generation of 200,000 in October this year, as against an anticipated growth of 120,000, lent more
credence to the US growth story. In a globalized world, growth is interwoven and interlinked. Sooner the green shoots of
growth are going to permeate into other economies including India.
The other side of the spectrum is the likely tapering of the quantitative restrictions by the Federal Reserve riding on the
back of the consistent turnaround of the economy. ”Taper tantrum”, as was referred by the major trading partners of
the US, may become reality, if certain sections of the economists have to be believed. In ordinary parlance, this would
mean that the US $ 85 billion monthly bond buying exercise, being carried out by the Federal Reserve, aimed to kick-
start the economy, may be phased out sooner or later. It was widely expected that in last September, such a move
would be carried out but was put off thanks to many factors including the lobbying by the major trading partners of the
US. Easing of the quantitative restrictions will bring about several economic changes that will impact the global
economy. Important among them is the hardening of the interest rate in the US, which will divert a lot of investments to
the US, especially by the foreign institutional investors. This will cast shadows on the financial markets of the rest of the
Admittedly, one cannot indulge in a wishful thinking that the quantitative easing will be put off in perpetuity. The
Federal Reserve will resort to the easing process sooner or later. India should be prepared for insulating the economy
from the adverse impact that may unfold. For that we have to put in place our macroeconomic fundamentals. A few
things need immediate attention. First and foremost is the interest rate, which is still very high, making cost of finance
prohibitively higher. As against the widely-held expectation that the interest rate will be brought down to kick-start the
Indian economy, it has moved north on account restrictions imposed on treasury operations like increase in the repo
rate and tampering with the cash reserve and statutory liquidity ratios. As a result, some banks have increased their
lending rate for housing and auto loans. It is important that we take some cue from the Federal Reserve move to keep
the interest rate in a tight leash to boost the economic activities.
Price rise is a major concern. Prices of certain vegetables like onion, tomato, potato, fruits, milk and poultry items have
gone up manifold in the recent days. There seems to be no respite from the price run, though it was expected to come
down with the onset of the winter. There seems to be some supply-side bottlenecks to be addressed. Some of the age-
old and archaic mandi rules and regulations have to be reviewed to see that no one takes advantage by creating artificial
shortages. Such people should be brought to books. The other side is reforming the agriculture by introducing more and
more corporate farming to increase the productivity. It is also instructive to consider whether the farmers should be
allowed to sell their products directly to the consumers without the intervention of mandi committees.