It has been an year and half since the crack in the US financial system exposed itself .Since then it has been growing on itself and worse, has spread to the various other geographical territories and asset classes as well. Thanks to the increased level of globalization , not a country is left without being unaffected the downturn.
True , India being a least export dependent economy (thankfully, in hindsight) is affected in much lesser degree than the commodity producer countries and manufacturing bases of the world ,whose markets suddenly disappeared.
True, the stricter norms in banking and lack of huge exposure to the foreign investment have saved us from being hurt severely. Thank the left for that for holding the government back on these all these while.
In spite of all these we have a huge problem at hand due to the severe debt to GDP ratio and the resulting budget deficit. Not sure how the government is going to fund for the next few years expenditure. Chances are less that the foreign investors will return to India before US economy is stabilized. Even if that is going to the case china would be a much preferred destination for those as that economy would bust into higher levels of double digit growth once the bottom is reached in this down trend.
So what the govt should do other than wait and watch till the capital markets recovers. What would happen to the numerous who are about to become unemployed in the short period?
There are few options , considering our Forex reserve is not great! Yet the fact remains that we do have a good forex reserve. Not the moot point should be is it worthwhile to hold on to it?
Dollar as a currency for exchange has been always accepted and in fact preferred worldwide over other currencies. However , with the slowdown in US is almost an irreversible process and that even if it recovers it would take long time to reach the pre 2007 levels , would cause substantial weakening of dollar.
It is quite possible that in the foreseeable future the dollar can potentially fall to half its value vis a vis other currencies. This would mean a huge loss to the already struggling govt. It would there is advisable to spend the forex reserve sooner than later on our domestic demand.
Also , another great idea that emerges out is that of stockpiling the crude. Granted , with the sentiment is lowest following the slowdown, crude prices has reached rock bottom prices. But fact remains that the crude still remains as the most wanted commodity and it is getting depleted very fast. The prices of crude can not remain low for too long a time. It will for sure recover and in fact when it does, it will shoot through the roof.
This is a golden opportunity for countries like India to build an oil reserve at these rock bottom prices . It could potentially turn into a goldmine in a few years time.
So my suggestion would be to convert a major chunk of the Forex into Crude reserves. A simple but wise choice!
True , India being a least export dependent economy (thankfully, in hindsight) is affected in much lesser degree than the commodity producer countries and manufacturing bases of the world ,whose markets suddenly disappeared.
True, the stricter norms in banking and lack of huge exposure to the foreign investment have saved us from being hurt severely. Thank the left for that for holding the government back on these all these while.
In spite of all these we have a huge problem at hand due to the severe debt to GDP ratio and the resulting budget deficit. Not sure how the government is going to fund for the next few years expenditure. Chances are less that the foreign investors will return to India before US economy is stabilized. Even if that is going to the case china would be a much preferred destination for those as that economy would bust into higher levels of double digit growth once the bottom is reached in this down trend.
So what the govt should do other than wait and watch till the capital markets recovers. What would happen to the numerous who are about to become unemployed in the short period?
There are few options , considering our Forex reserve is not great! Yet the fact remains that we do have a good forex reserve. Not the moot point should be is it worthwhile to hold on to it?
Dollar as a currency for exchange has been always accepted and in fact preferred worldwide over other currencies. However , with the slowdown in US is almost an irreversible process and that even if it recovers it would take long time to reach the pre 2007 levels , would cause substantial weakening of dollar.
It is quite possible that in the foreseeable future the dollar can potentially fall to half its value vis a vis other currencies. This would mean a huge loss to the already struggling govt. It would there is advisable to spend the forex reserve sooner than later on our domestic demand.
Also , another great idea that emerges out is that of stockpiling the crude. Granted , with the sentiment is lowest following the slowdown, crude prices has reached rock bottom prices. But fact remains that the crude still remains as the most wanted commodity and it is getting depleted very fast. The prices of crude can not remain low for too long a time. It will for sure recover and in fact when it does, it will shoot through the roof.
This is a golden opportunity for countries like India to build an oil reserve at these rock bottom prices . It could potentially turn into a goldmine in a few years time.
So my suggestion would be to convert a major chunk of the Forex into Crude reserves. A simple but wise choice!
