THE FM's SPEECH - COULD NOT HAVE BEEN MORE REASSURING

By Ruma Dubey

For the market to react this way to a very pragmatic speech of the Finance Minister, P Chidambaram today was pretty immature. Yes, we have become a nation of One Day matches and have not got the vision and appetite for Test Matches which actually builds real talent.

The BSE slipped further and the rupee fell further post the FM’s speech. The market is indeed behaving like a spoilt, petulant child, who wants everything immediately and cannot wait for better things in the future. The rupee slipped because the FM did not announce anything on the NRI bonds. How myopic can the market get? It is good that the FM did not make any statements just to placate the market as that in the long run would have been more detrimental. His stance that he cannot announce a decision on something which he has made no decision was perfect.

We should be glad that he did not make any forward looking statements but merely stated all that which is on his agenda like the meeting on the 25^th of June for taking up the recommendations made by the Chandrasekhar Committee on FII investment. He also spoke about clearing around 25-30 projects which have been stuck for want of one or two clearances. Now that is really good news He talked about exploring the very purpose of having caps on FDI and said that he was looking at all sectors where FDI can be reduced and was also looking at the defence sector.

He implored people of India to stop buying gold and said that if they refrained from buying gold for even a year, there could be a dramatic change in the Current Account Deficit (CAD) scene.

On the rupee fall, he said that all steps were being taken to cure the currency’s fall. He said that there was no reason for panic; as it was not a reflection of any systemic failure or problem in the Indian economy. Currencies across all emerging markets, wherever CAD is high, have been depreciating. So he assured that it was more of a global issue and not about India as such.  Thus to be disappointed that he announced nothing is being truly short sighted; actually he does not have any cure for this rupee fall so to have announced something merely to placate sentiments would have been wrong.

Yes, at the end of his speech, we all came off wondering about the entire purpose of this press conference as he had not announced anything specific as such. But when you try looking for the purpose, you realize that it was to assure all that he was very much on the watch, knew that the rupee was falling, markets were falling. He also sent across the message that the Govt was working on various issues and in the next 2-3 months, we are sure to see major developments and decisions coming from the Govt.  That is more important – to know that the Govt is working on improving the long term story of the country. We only hope that this talk of the FM is indeed met with action…….

Cues to be taken from the FMs speech today:

Broadly in favour of Chandrasekhar panel recommendations for FII investments

Gold imports have sharply come down this month – will take steps as and when required; no more import duty hikes on the agenda.

Coal, gas pricing issues to be resolved by June end

To urge ministers to spend money allocated to them as per the Budget as Govt spending & public spending will help growth story

Plans to announce a review of the foreign direct investment limit

25-30 projects stuck for want of one or two clearances will be given the go ahead by the end of the month

To meet chairpersons of various PSU banks, to discuss amongst other things, the need to pass on more benefits of RBI rate cuts

The FM also spoke about meeting with SEBI and reviewing the recommendations made by the Chandrasekhar Committee on FII investment. He said that he broadly agrees with the suggestions.