It's not everyday that I am so lucky to read an article by Raghuram Rajan, but whenever I have the chance I make sure that I stop everything and concentrate.



While it's raining money in the Indian capital markets on the back of the paper being printed by the GOI and the divestment of PSUs and some private players (HDFC Bank), the government has a buffer in plugging the fiscal deficit, but this is only a temporary solution to the government's woes. The headline inflation has tanked majorly due to oil prices, but food basket historically drove the inflation sky high. So, we should be comfortable there as well as Modi government has already decided to plug the loopholes in the food and agri subsidy distribution schemes by coming out firmly on direct cash transfer. Moody's views this positively as well. The key to driving India's credit ratings upward is the central bank's stance on the repo rates and the GDP growth. While the former should be the result of fundamental changes only, read government's stance on investing in infra projects and driving them to execution - just printing paper won't help. Make in India, if successful will drive the manufacturing hub and investment in terms of human capital will benefit the manufacturing sector to a huge extent. China is primarily an export driven economy and we are primarily an import driven economy. While we might not be able to turn that overnight, we can definitely address the issue by making presence on a global stage so as to have an organization that facilitates "free" trade. I think the Banker of the year - yes, that's none other than Raghuram Rajan has hit the nail on the head with this article.



I think I am falling in love with the central banker already. What needs to be seen is his stance on not loosening his grip on the repo rates just because of a temporary rosy picture in terms of fiscal deficit. Though oil has been a buffer in terms of the fiscal deficit, CPI was largely driven by food inflation. It needs to be seen if the Modi govt. really practices what it has been preaching.



Regards

AA



