Sunday, December 4, 2011

Didi and the Hausfrau

Mamata Banerjee, Chief Minister of West Bengal, seems to have put paid to our government's plans to allow foreign direct investment (FDI) in the retail business. The Finance Minister, Pranab Mukherjee, has been evasive in replying to media questions about his government's intentions, but it doesn't appear that the UPA  has the mojo to take on both its partners as well as the opposition.

I saw the FDI announcement as untimely, given the fact that a dysfunctional, unruly parliament was in session. Under the circumstances, it could only be seen as a last-ditch effort to inject some positivity into the rupee, especially given that the RBI had pronounced it would not attempt to shore up our currency. Now that the FDI prop has gone, the RBI has stepped out and said it will defend the rupee. This may not work, especially with crude oil prices seeming more and more firm every day.

In Europe, Angela Merkel has the Eurocrat-socialist consensus in her thrall. The overspending, overpaid mob want to pile all the failures of bloated European government debt onto her plate, and get her to sign blank cheques and bank guarantees to pay for their sins. In response, Merkel's saying, "I'll pay the piper, if I can call the tune". This is not what they want - they want her to pay the piper now, and then 'help' her write the tune later. It's not going to happen - she has a parliament to run, and an electorate to respond to, and they have made their sentiments well known - no supporting lazy Southerners.

Whatever comes out of the European summit this week, its not going to be a Big Bazooka rescue for Europe.  World markets, which were riding on this hope, are going to be sorely disappointed.

But well before that, in the next couple of hours, we are going to see a sell-off in the rupee. The RBI may try to jump into the fray, but that would be ill-advised.

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