The Rising Inflation Phenomenon!

It is no big surprise for inflation to go high. India February inflation data well justifies the fact. The Feb WPI (main inflation indicator) went up to an annual 6.84 percent, which is higher by 0.30 percent of what analysts estimated. It was 6.62 percent in January. Non-food inflation slowed to 3.8 percent during the same period. February Inflation data report surged the otherwise falling India Stock market.

To add to this economic disadvantage is incessant weakness in economic activities. The situation has generated hopes amongst analysts about a possible rate cut by the RBI by at least 25 basis points in the meeting scheduled on Tuesday, March 19.

It was in January that the RBI had cut its key lending rate by 25 basis points after a gap of 9 months. A rate cut would only help handling the crisis. With the govt all geared up to reduce the country’s fiscal deficit, more RBI rate cuts are probable in the forthcoming months.

Nifty and Sensex showed improvement after the Feb WPI report came and the main contributors were banking stocks!

Mixed criticisms for Budget 2013

Had not welfare spending given some importance in Budget 2013 (though not the big way), extreme poverty could not be tackled. But then overall, Union Budget 2013 is practical! An unchanged sovereign rating is another outcome of the budget.

No wonder structural imbalances cause macro-economic challenges and the budget hardly addresses them. It is rightly conjectured Mauritius tax treaty could have been avoided, especially when statistics prove that 40 percent of foreign in-flows come through this path.

Measures like additional tax break for first home owners, implementation of the Goods and Services Tax, higher govt. borrowing, are indeed appreciable not to mention debt fund investments (for a year). The common man’s struggle against inflation and negative real return on investments and income seem to continue. ‘Taxing on the rich’ is no big solution! The Direct Taxes Code can only deliver some change.

The big challenge for Chidambaram now remains of meeting the 4.8 percent of GDP fiscal deficit target next fiscal. You can read the complete article here
http://blogs.reuters.com/india-expertzone/2013/03/05/budget-2013-a-rather-ambitious-budget/

Reaction of rating agencies for Budget 2013

Yes, Union Budget 2013 is indeed realistic. Reaction of rating agencies substantiates the fact. Moody's Investor Service said that the initiatives introduced can help meeting India's fiscal deficit target at 4.8 percent of GDP, which will pave the way for positive credit ratings. But this is an overall comment; there are issues that are challenging. Meeting the growth targets in few areas will remain challenging. The revenue and spending issue cannot be ignored as well.

So, India is all geared up for an economic growth revival. According to reaction of rating agencies such as Moody's it was sharp spending cuts that has helped the country meet its fiscal deficit target of 5.2 percent of GDP, ending March fiscal 2013. The same commitment needs to be retained ahead.

According to Moody's, the selling of stakes in public companies was less, which led to raising of less money though at the same time budget targets being not met during the past several years.

You can read the complete article here –
http://in.reuters.com/article/2013/03/04/india-ratings-moodys-budget-idINDEE92303I20130304