Well, the outcome of the much hyped G-20 summit over the weekend was
a bit of a damp squib. Leaders of the world's leading nations (advanced
and emerging) failed to announce any major breakthrough initiatives,
except for a symbolic appeal for a coordinated global action to tide
over the unprecedented crisis. However, India can take some solace from
the fact that the G-20 summit unanimously decided to shun protectionism
and give more say to developing economic powers like China and India
in managing the global financial architecture.
Back home, the RBI decided to take few more steps to limit the damage
on the Indian economy. It has announced measures to boost dollar inflows
by raising interest rates on NRI deposits. It has also decided to ease
the liquidity pressure on Real Estate and NBFCs by lowering the provisioning
and risk weight on loans to these battered sectors. The central bank
will consider proposals for buy back of FCCBs, besides allowing registered
housing finance companies to raise short-term loans overseas and extending
the special repo for MFs and NBFCs.
The latest attempt by the RBI to ease the credit crunch is not a surprise
given the extraordinary situation facing the Indian economy. It may
at best bring some relief to the beleaguered financial markets, but
is unlikely to lift the key stock indices beyond a few hundred points.
The case in point is last week's trade, when the improved data on industrial
production and a surprisingly sharp drop in inflation failed to perk
up the markets. The fear is that the macro-economic numbers for the
coming months may be even worse. The one bright spot could be further
fall in inflation, could allow the RBI to announce more rate cuts.
Having said that, the recent past has shown that any measures announced
by governments and financial regulators have had only a temporary effect
on markets. The same trend may play out again today. The key indices
might gain some ground after last week's rout (Sensex and Nifty down
over 5% in four sessions!). But, one must be ready to see more red than
green on screens, as the global economy is in dire straits, and may
well remain bogged down for several months to come. For India, another
factor could play spoilsport with markets; the slew of state polls in
Nov-Dec and the general elections next year.