Business-Cycle, INDIA...

Article;
Easier ECB norms are Govt- RBI storing up problems for future by allowing more foreign-debt.

Comment;

Borrowing in own currency reduces the risk of default because we can monetize the debt. Therefore piling debt and that in a different currency are two different things. From the view-point of risk and credibility the latter poses a serious concern in case our exports are not that good because it is the only way we earn foreign exchange and the others are just measures to manage inflows and out flows, not certainly income, interest income apart. CAD due to low capital inflows may be exaggerated due to our interest payment on debt which is a double pressure on our foreign exchange reserves. ECB just to finance CAD will prove to be a bad idea in the medium-term because it increases our liability, sooner or later. We are concerned about fleeing foreign capital but it might be good from the inflation point of view, less investment, less income less demand. I think the economy will first go down before moving forwards in terms of prices. At-least signs are there fleeing foreign capital, depreciating currency, falling stock market, falling gold prices (almost recovered). Even the stock market admitted that valuation were very high, market is expensive. Therefore we are going through a correction after the highs (boom) of 2005-11. We are handling the hangover of elevated prices which are retreating to their original levels. At lower levels prices become sticky. I think INDIA has just completed a cycle. But we have good signs, too, when market goes down it becomes more affordable…