1. Growth VS Inflation
• Effect of repo rate and CRR on Growth and Inflation.
• Food inflation down but is it related to monetary policy?
• Inflation of manufactured products 7.5 %
• Overall, manufactured products account for 65 percent of the
WPI, while fuel accounts for another 15 percent. Food articles account
for roughly 14.3 percent of the monthly index, and non-food primary
articles the rest.
• Indian economy struggling to grow at 7%
• November IIP growth 5.9% (should consider Diwali factor)
• if the RBI cuts rates now, the effect will only be seen after four to six
• months; waiting until March to take more decisive action on interest
rates could be too late for an already sputtering economy.
• So, Reduce repo rate by 25 basis points and keep CRR as it is.

2. Rupee Depreciation
• Rupee depreciation – inflation impact.
-food products, manufacturing products(textile etc.. Very less)
-fuel products less impact due to subsidy.
• Fiscal deficit, subsidy policy and external factors (Euro debt crisis)
RBI can’t do anything.
• Exporters often try to “time” the market by hoarding their dollar
receipts in expectation that the currency will weaken. When
exporters stay away from the market, but necessary imports, such as
oil, generate a demand for dollars in a one-sided, illiquid market, the
currency depreciates. This reinforces exporters’ beliefs of further
weakness and induces them to stay out even longer, driving the
currency into a self-fulfilling weak equilibrium.
• needs a trigger to unwind this trend.
• convince market participants that the rupee has “peaked” thereby
unwinding the speculative behaviour.
• In this kind of negative economic scenario, RBI should appreciate the
value of rupee to an extent where it does not have negative impact
on their reserves.

3. FDI in Retail
• India’s Retail Industry is currently ailing due to lower demands
and high operating costs and FDI in retail will certainly help cut
out its losses and look for further growth areas.
• Liberalization will be good for consumers as foreign players
would bring in quality product.
• It will provide more value to farmers as they can sell directly
to Retail giants.
• The idea that FDI will push local Kirana stores or middle men
to oblivion is unrealistic , given the size of Indian Retail
Industry.
• Kirana stores will always hold advantage in personalized
dealings with customers
• Indian Household will get better quality goods at competitive
prices.
• Government can stem tax evasion by retail shopkeepers as
with such an organization of retail sector.

4. Food Security Bill
• It seeks to cover 75% of the rural population and 50% of
urban population in the country. Initial estimates suggest
that the food subsidy bill could be upwards of Rs 1 lakh
crore.
• A minimum of 46% of the rural population and 28%
urban population will get 7 kg of food grains per month
per person. Rice would be provided at Rs 3 a kg, wheat at
Rs 2 and coarse grains at Rs 1 a kg.

5. Its Implications
• India already has 54.7 million tonnes of rice and wheat lying as
stocks with the Centre and the states, 29.7 million tonnes of
grain in excess of the buffer stocking norm. By cornering huge
volumes of grain, the government reduces the supply in the
open market, putting upward pressure on prices. Thus ,
creating a government-induced inflation.
• Private Industry is already plagued by export bans every now
and then and India is not able to take advantage of growing
food demand in developing areas like Africa.
• It will put additional burden on the government (Rs. 1 Lakh
Crores)
• India’s Middle class will take the burnt at the cost of these
inefficient means to empower marginalized people.

6. Capital Account
Convertibility
IT is a feature in Financial Policy which allows
conversion of local financial assets into foreign
financial assets and vice versa at market
determined exchange rates.
This theory was first proposed by RBI in
1997 in Tarapore committee report. It earmarked
some favorable conditions before implementing
full capital account convertibility

7. Implications of Full CAC
• Free asset acquisition will promote fund inflows.
• NRIs can easily buy assets in India without lock-in
periods.
• Ability to carry more cash(foreign currency) both in and
out of the country
• Will boost FIIs to invest in domestic industry

8. Downside of 100% CAC
• Heavy Capital flight may destabilize the economy.
• Excessive Capital Inflow can cause currency appreciation
and worsening of balance of trades.
• May only boost short term FIIs rather than long term
FDIs

9. Our Recommendations
Taking a cue a from Tarapore committee report
India’s is still not ready for 100% CAC, but can progress
towards it in phases. Full Capital account convertibility can
be implemented only with stable inflation rate(3-6%), lower
CRR and cutting NPAs(Non performing assets). There is no
point in adding to the top of the pyramid when the base is
too weak. This will largely depend on country’s ability to
bring out policy changes to initiate universal quality
education and health services and empowerment of
marginalized groups