Money Matters - Simplified

Indian Economy News :Economic crisis triggered by Government’s disaster policies?

Are the Government economic policies in India a disaster? That’s what Marc Faber Swiss investor and editor of the 'Gloom Boom & Doom', has to say about the current economic crisis faced by the country. He says that the mess is because of the “disaster” policies made by the Government of India.

Disastrous economic policies?

Faber has a strict word to put across and says that the Indian Government is unable to tackle the economic crisis effectively and the bond markets. According to him, the equity is rickety because of the economic policy mess created by the Government. Marc Faber, who is the Managing director of Marc Faber Limited, went on to call the Government policies a “disaster”.

He stated exuberantly "Over the long term, I am negative about the rupee. The rupee is weak because India has higher inflation than other countries, and the problem is that a weak rupee can lead to even higher inflation and India's ratings downgrade is quite likely.”

The debt markets

So isn’t it concerning that nearly $ 11 billion has been pulled out from the debt markets and the equity markets recently? Reports confirm that unrealistic and exaggerated expectations have been focused on the Indian markets. What about Indian’s Macro economy? It may be struggling as compared to China but there have been a number of Indian companies that are benefitting in this scenario as well. The only hitches here are the government policies.

Faber commented “The government in India, through its incredible bureaucracy, has retarded economic growth in the last 20-30 years by at least 3% per annum in real terms. It's a miracle that the Indian economy has performed well, considering the quality of its government.”

According to him, there is an under reporting of the rate of increase in inflation and cost of living. This lack of appropriate measurement of the inflation has led to the interest rates being calculated in negative terms.

The way out

Categorically, Faber insisted that the best way out for the government is to get strict stating “though it can be painful, it should increase rates substantially, stabilize the rupee. To increase rates would imply a lot of pain in the economy temporarily, but in the long term, it would be desirable.” He called the plunging rupee a symptom of excessive consumption and poor budget balance. The depreciation of the rupee shows brightly in the current account deficit and flailing trade.

Talking about the India’s ratings downgrade, he gave his verdict “It is quite likely. Indian companies have fair amount of dollar liabilities and the weakness of the rupee only increases the interest payments. Yes, it's quite likely that the ratings downgrade will happen. But the markets have been discounting mechanism and they have discounted it.”