Dr. Y.V.Reddy announced the Credit Policy, and boy did the markets react or what? 550 points shaved off, and Udayan Mukherjee, the ever-optimistic bull, sounded gloomy for the first time I must add, in the years that I've followed him.
The last thng India needed was a tighter environment for equities, and th RBI with its' CPR actions has done just that. Interestingly Dr. Reddy outlined the following three reasons for Inflation:
1. Supply-side shortages - Fiscal policy issue.
2. Demand-side shortages - Monetary policy issue
3. "High-availability" of credit - Monetary policy issue
What he did not mention is the weighttages or the percentage contributions to Inflation of the above. Mr. FM has already clamped down on futures market in most food-grains like rice, oil etc. Besides the export of most of the "inflationary" commodities is already either banned completely or is curbed substantially.
The demand-side is where the action lies. By artificially inducing an environment to spend less, by making consumers pay much more (opportunity costs) for items is depriving the nation of consumerism. Why not simply remove the subsidies on farming and let the market then pay for the same? Inflation is a right-ful concern, but so are the basic needs of this generation!
Lastly, the diversion of funds from the sytem into the bank safe would mean the same, everyone has to shell out much more just so that poor sections can afford commodities that are having an intrinsic high value. That India is turning out to b a clamp for people with aspirations is very clear from the current actions of the RBI. This country is for labourers and black-money-proponents. Any other section is just meant for sucking value out of, to feed the classes above.
Highly disappointing day for the Indian Growth Story.
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