The world is still none the wiser on whether the US Federal Reserve will or will not start “tapering” its quantitative easing (QE) programme that saw $85 billion being poured into US banks every month to revive the American economy.
The meeting of the Federal Open Market Committee in the US, that was expected to throw some light on this on Wednesday, only sowed further confusion with analysts picking on September or December for the “tapering” to start.
The damage to global economies, particularly the stock markets and currency markets of emerging economies, has been immense. India has been one of the worst sufferers because of its already weak fundamentals. With this uncertainty likely to continue for some more time, the Indian government should, instead of leaving the country hostage to this uncertainty, factor in the “tapering” and act accordingly to cushion the economy. The main fallout of such an eventuality will be foreign institutional investors withdrawing some of their funds from the equity and debt markets. As this could badly hit the current account deficit, one of the things the government should do is to boost exports and attract more foreign direct investments, particularly in high and medium technology sectors. It should also immediately bring in more reforms to improve the ease of starting and doing business. India ranks 132nd out of 185 countries in the ease of doing business, and there has been no reform on this score in the past one year. Are you listening, Mr Chidambaram?