Cheers and fears

Cheers and fears

On a day when new data showed the economy grew even faster in 2006-07 than was earlier assumed, RBI published a report that pointed to some of the risks that the economy could face because of the rush of foreign capital into India.

First, the new GDP growth numbers. They show that the economy is sprinting ahead. This is champagne moment as well as a cause for sober questioning. Why is the economy not slowing down despite higher interest rates?

Do we need more aggressive monetary tightening? Meanwhile, RBI has said in its latest Report On Currency And Finance that issues of financial stability are likely to become even more important in the future, as banks, companies and investors are not armed adequately to fight bouts of financial market volatility.

Thankfully, it suggests that India needs deeper markets and more derivatives, rather than more controls. Balancing euphoria and caution will make the coming quarters interesting.