GOVERNMENT'S FISCAL DISCIPLINE KEY TO FIGHT GLOBAL UNCERTAINTY

Uncertainty is the only certain factor for financial investors these days. US job data came on Friday with unemployment rate falling to 4.9%, 8 year low since 2008.  Markets should cheer like a jumping jack but nothing happened as such. Though stock markets opened positive, most of them closed negative by falling 1-2%. Number of jobs added in January stood at 151,000, way below 262,000 and 280,000 in December and November respectively. So analysts are worried about this falling trend. Though there has been decent increase in wages, slower job creation over the 2-3 months has transmitted mixed signals about the US economy.  

And everything rounds up to just one thing, whether there is going to be a rate hike or not in March by US Fed. Madam Yellen’s semi annual testimony on Wednesday is expected to give some cues of what she has in mind, as a result, stock markets are on tenterhooks…… Do retail investors need to worry about what happens with US Fed cutting rates or ECB continuing with its spoon-feeding. Yes, it does affect, India can no longer be isolated or ignored by the global financial community. Foreign portfolio inflows will see-saw according to global financial volatility index. What should concern us more is what is happening in our own home with respect to coming budget, pending bills in parliament, inflation data etc…..

Our RBI Governor has already warned the central government to be on the path of fiscal consolidation. Higher fiscal deficit will not only increase inflation but will put a question mark on NDA’s credibility as reform process is already slow. Thus, Modi government is definitely expected to fulfill its agenda of fiscal discipline in the coming budget. Lower fiscal deficit will control inflation giving more power to RBI to cut rates, strengthen Indian rupee and of-course encouraging retail investors to take adequate risk by providing stable economic environment.