Mumbai, Sep 4 (): RBI new Governor Raghuram Rajan took charge at Mint street. As he walked into the RBI building, stock markets greeted him with a 300 point increase and the rupee marginally recovering.
In NewDelhi, PM Dr Manomohan Singh left to attend the G20 summit. He called for developing countries to adopt an orderly exit from what he termed as unconventional monetary policy that was affecting emerging countries. He was talking about the tapering of the economic stimulus by the US Fed.
Rajan walked into his RBI office on the 18th floor and was greeted by outgoing Governor Subbarao. At the entrance he posed for the cameras of the media. India Inc is looking for Rajan to ease the liquidity concerns and lift the capital controls. Expectations are riding high as August PMI shows that it has hit the lowest since 2009.
Rupee downfall is yet another concern. Rating agencies say that if this continues for next quarter the downgrading of sovereign status is inevitable. The foreign institutional investments in stocks are the backbone of the economy. The monthly sale of $85,000 billion bonds by US to prop up the economy saw FII use this route to invest in emerging markets.
As the US Fed signalled that it was time to cut down on this quantitative easing since the economy was looking up, FII net outflows increased. Since yesterday the stocks saw most of FII returns to markets. The ability to get Parliament nod for two bills and a few more which has financial implications has created a belief that UPA ministry can pull off things. The fast track clearance for infra projects in the last month and more to come up before the cabinet has also worked well.
Rajan who had a stint at the IMF has been hand picked by Chidambaram to pull off certain measures which will revive the markets. A policy paralysis at the Finance Ministry, wrong signals sent out on taxation and big ticket investment caught in red-tapism had taken the toll.