Modi Government Faces First Bitter Macroeconomic Realities

BANGALORE: PM Narendra Modi and his ministers, after taking charge, decided to deliver their promises made. The entire country is looking forward to see the changes brought by the new government. However, they faced their first bitter experience with the wholesale price index inflation rate going up to a five-month high and the tensions in Iraq spiking the oil prices, weakening the rupee and getting the stock markets down again two days in a row.

The government is hoping that the inflation, which is going up, will eventually come down. The increase was mainly due to the supply side constraints, primarily in certain foods. The inflation is currently causing food, manufactured products and the fuel to increase the prices. 

Meanwhile in Iraq, the increase in their crude oil basket price from $110.54 to $108.52 affecting the market that weakened the rupee to 60 a dollar mark. But, the two day fall in the rupee boosted the IT stocks, Companies like TCS and Infosys benefitted from this.  Also, according to the currency dealers, RBI intervened in the currency market in early trades but the weakness in the rupee is continuing over two days due to the dollar demand from oil marketing companies.

Moses Harding, group CEO (liability and treasury management) and chief economist at Srei infrastructure finance said that the stakeholders expect the central bank to prevent the rupees weakness above 60 to guide consolidation to 58-60 a dollar until the macroeconomics conflicts are resolved because the RBI has arrested the dollar’s decline below 58. The equity markets have also declined since two days because of the crude oil price increase with sensex ending 37.69 points, which is lower than its pressure close.

This shows that the country’s benchmark index has dropped 1.5 percent, which has been the biggest single day decline in four months.