Stock markets plummet; IIP dips; FM cancels visit to Washington

Written by:
Subscribe to Oneindia News

New Delhi, Oct 10 (UNI) The reverberations of the global financial turmoil are being felt with greater and greater intensity in the Indian economy as a worried government combats problems resulting from a fast depreciating rupee, tumbling stock markets, lower industrial and GDP growth and high inflation.

After a 50 basis point reduction in Cash Reserve Ratio on October 6, the Reserve Bank of India today further slashed CRR by 1 per centage point pumping a total of liquidity of Rs 60,000 crores into the financial system.

The news which should have been received with open arms by the stock markets did not convince the players as the BSE Sensex plunged by a hefty 800 points, with many describing the mayhem as 'Black Friday'.

The index closed at 10,501.85, it being the lowest since July 2006.

The index closed 15.95 per cent lower for the week, its worst since December 1990. Following Friday's fall, the market barometer is down by about 59.7 percent this year and continues to be one of the worst performers in Asia.

The Rupee hit an all time low of 49.30 per dollar in early trade bringing this years losses to 20 per cent before it regained some ground with the help of Public Sector Banks selling dollars and the cut in CRR.

According to informed sources tight liquidity also prompted the government to call off an auction for two billion dollar worth of government bonds.

In view of the rapid developments, Finance Minister P Chidambaram and Plannig Comission Deputy Chairman Montek Singh Ahluwalia decided to cancell their visit to Washington where they were going to attend the Annual IMF-World Banks meetings.

However, a high level delegation, led by RBI Governor D Subbarao, is already in the US capital to attend the meetings.

Earlier in the day, Mr Chidambarm announced setting up of a high powered Committee, headed by Finance Secretary Arun Ramanathan, to address the credit needs of various sectors.

He categorically assured that the liquidity problem of the financial system will be adressed and that the fundamentals of the economy continue to be strong.

Despite unprecedented co-ordinated action by the world's leading Central banks to waive-off a financial crisis fears of a global sell-off on recession plague domestic and foreign players. There is panic in the Indian markets and fears of a run on the rupee, particularly if the rupee breaches Rs 50 per dollar. The market feeling is that the government will make an all out effort to prevent this from happening.

The peculiar problem that the Indian autorities face is of easing liquidity in a situation of high inflation. Data released during the day showed that inflation rate stood at 11.80 per cent for week ended September 27 as compared to 11.99 per cent.

Inflation has been hovering around the 12 per cent mark, which is way beyond the comfort zone.

The goverment's problem were compounded by the IIP figures which showed that industrial output recorded a growth rate of 1.8 per cent in August 2008 as compared to the roboust figure of 10.9 per cent in the same month last year. Worst still was the fact that Manufacturing slumped to 1.1 per cent in August 2008 as compared to the growth rate of 10.7 per cent in 2007-08.

Economists are now lowering the GDP forecast for the year pegging it not beyond eight per cent for the current fiscal, in what has now become known as the second fastest growing economy in the world.

All and all, the Indian government is faced with one of the most formidable economic and financial crisis ever. No one knows where and when the slide will end.


Please Wait while comments are loading...