From a common man’s perspective the world over, two things that determine prosperity are a strong currency and good returns by corporate entities. The rupee is doing well. At the same time, corporate results have shown over 30% top-line growth with over 46% bottom-line growth. Even if corporate India grows by half as much next year, its performance will still compare well with other economies.
If at all there will be a slowdown, to my mind, it will be attributable to high interest rates. It took us some eight to 10 years to bring some semblance in our interest rates vis-á-vis the rest of the world, and we took only six months to turn the clock back full circle, and even worse. It is likely to take a minimum of two to three years for these interest rates to come back at par with global rates again.
Interest rates have been massacred for two reasons. First, overheated real estate markets. Yes, something had to be done about it. However, the real sufferers are the common people who are finding it tough to carry the weight of their existing loans. So either they give up their ‘dream home’ or pay up—but from where?
Second, inflation—again, it is fair to attack this issue. Here, however, I believe the reasons were misunderstood. It was not because the common man was spending a lot of cash and pushing up prices. Instead, it seems to be a handful of the neo-rich, who wanted to grow quickly, and heard of people getting rich the world over by trading in commodities. The electronic medium was just introduced for everybody and anybody to trade in commodities. These people set aside a budget they could ‘afford to lose’, and started playing rather recklessly, based on advice from people with half-baked knowledge. If there are a handful of one lakh persons, setting aside Rs50,000 on an average, the buffer becomes a whopping Rs500 crore. Once again, if commodities get overheated in the Internet accounts, then real market prices would tend to catch up, too.
A better way, perhaps, to handle this was to simply take a stock of commodities that were overheated, and allow duty-free imports for a window of, say, three months. This would ensure that the people who were responsible for this bubble causing would lose the budgets they set aside to ‘flirt’ with the markets in the first place. This way we would have ensured that these people leave the job of speculation in commodities to people who know the business well.
I put this simple question to common people whether the price of commodities bothered them or the changing interest rates, and an unambiguous answer, at least from the Delhi crowd, was that it was the higher interest rate on their loans which bothered them immensely, and shook up their monthly budgets.
An interesting observation was that higher commodity prices did not bother them anyway, as ‘hopefully’ this would benefit the farmers somewhere down the line. Their view was that the government had, in any case, increased the prices of basic amenities such as electricity and water and that the farmers—the backbone of the country—should also get their fair share of prosperity which, they felt, was possible only if higher commodity prices translated into farmers’ income, not for the ‘retailing giants’.
I think what meets your eye is not the truth, as far as politics and diplomacy are concerned and, therefore, tend to chase the truth somewhere in between the lines. Isn’t it coincidental that the interest rates are rather ‘forced’ upwards, and soon thereafter there has been blatant talk of certain international banks plan their entry into India? Are some interests are being taken care of? If such new entrants get such a fabulous batting wicket, they will certainly give the State Bank of India a tough run, as feared by the bank itself.
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