Inflation and recession

Country’s inflation has fallen down from 11.44 to 11.07 for the week ended 11^th October. But if you compare the inflation rate in the beginning of the financial year it was lees than 5%.   

There is a substantial reduction the commodity prices which are unimagined. You may note the stock of the crops and the food grains also expected to see a reduction. This would lead reduction definitely below 10% if not to a level of 5.

The finance ministry was very open to consider the reduction of fuel prices if the price fall below to a level of 67.Off course the much expected and one of the major actions pending from government side is the fuel price cut. Which we may hope expected to happen any time.

As because viewing the current situation Government was much sympathetic and very keen in looking at the aviation Industry and given an bailout option for paying the fuel outstanding with the due consideration extending the credit terms.to avoid job loss(lay off) happening to India at a mass level.

Even left parties may oppose for the governments decision for supporting the corporate's like Jetand Kingfisher .But on the other face of it , it is the survival of an Industry as a whole.If the Government doesn't understand their position .At some point of time even Government may loose money also.(assuming that  if the Industry dies )

Though the kind of Job cuts may be good for the survival of the Industry but the kind of way it has been done was forced Government to intervene. Also in one of the meeting  minister has curtailed the top official of Air-India proposed for Job rationalization.He has been censured by the minister.Also the Indian economy and the Industry is not as bad for such Lay offs.

But all the IT majors have shown a positive results for Q2.Majors like Infosys commented that the environmental factors is one of the major factor but then they have been maintaining with the pace of additional headcount projected which is around 25000 employees.

Some of the experts feel that the impact t is not to the level of western economy. If such mass lay offs are set as precedent then the other Industries may start doing that only for their profitability in such a mass level in terms of  ten thousands(10,000).Then it would be a real recession.

Further, the stock market has not responded to the counter measures taken by the Government to improve the liquidity by the way of CRR (250 basis points) and Repo rate cut by 100 basis points. It would definitely start reap its benefits. And an average middle class investor can think of buying a house or an Automobile. The shift of wait and watch mode to a buy decision. There would definitely a time lag to realize the impact as it is taking time for the Global economic stability.

Also one more announcement from the Government side to increase the ECB and set a limit of 500$(million).Also the debt redemption pay out by the government also expected around 90$billion.This decision of the government may balance the forex reserve and balance the dollar rates against rupee.

Looking at the current trends though the slow down is imminent but the real impact of the slow down would be witnessed only while passing through the phase of it.