Indian finance minister worried about economic growth and employment momentum asks public sector banks to cut rates aggressively
Babu Ghanta
Jan. 5, 2008

Indian economy faces several cross winds. The Rupee is standing Rs.39.30 per one US Dollar. It can rise to Rs. 37 per US Dollar although Indian central Bank (Reserve Bank of India) is resisting all the US pressures.

Indian and Chinese currencies are poised to move up against Dollar and Euro. In India a 12% revaluation (appreciation) of Rupees has caused loss of 250,000 jobs in the outsourcing sectors. These are well paid jobs.

The inflow of Foreign Direct Deposit is increasing the foreign exchange reserve of India steadily. As US and Europe enters the decade of stagflation and eventual deflation driven recession, the Indian economy and foreign currency reserves can fall apart.

India is now racing to shrug off all the dependence of US and European exports and boost the domestic economy. It is a smart move by the Indian fiscal decision makers.

Finance Minister P Chidambaram advised public sector bank chairmen, who met him in New Delhi for a first-half review, to lower both deposit and lending rates by 50 basis points and step up consumer lending to ensure the economy stays on track to grow at 9 per cent.

The public sector banks, especially ICICI has adopted ‘hiring thugs’ to collect the bad loans. That was severely criticized by the Indian Central Bank. This Indian state run banks learnt the nasty techniques from American banks that first adopted to hiring thugs to collect bad credit card loans in India.

The Finance Ministry can smell an Indian recession in 2008-2009 that can turn into ugly depression. The Indian stock market is a bubble like that of China. At some point of time China will refuse repatriation of any investments by the foreigners. They will do it in such a way that foreign corporations will be forced to stay back in China and lose money. What India will do is unknown. In the past when political parties changed, Indians were quick to ask the foreign corporations leave the corporations.

The first step is in place. India will first try and boost the domestic economy. When that is insufficient, ugly measures will come into play.

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