The present dispensation limps and leans more towards providing a ventilator to the ailing economy than finding a lasting solution. Cannot say that it comes as a compulsion but, it certainly needs to take certain drastic steps than simply to look at the election prospects to go in its favour.
For now, let us confine ourselves to all that which brings - in much needed cheers to the market men. As for the inflation, it is not going to die down and so would be the case with sluggishness in GDP growth. Factors like, repatriation of money lying in foreign land, withdrawal of subsidiary (phase wise), austerity measures on government spending (for which government/leaders themselves are answerable) and one of most neglected area (thrust being on agri related economy) at the village level. Since our economy/GDP is directly / indirectly linked by agri to the extent of 50-60%, it is the growth of industry like fishery, bee keeping, diary farming, wind energy, hydro energy (in hilly areas where plenty of natural resources in term of water), water harnessing given different approaches, natural resources like herbicides which would add income both to the national income and forex. It would also provide plenty of avenues in terms of jobs to the youth in the interiors who otherwise remain a misguided lot singing at the tunes of anti social/anti national and fundamental forces. Our government must rise to the occasion and tap all these resources given the top priority to infra building at the rural level. It is already late in this direction by decades but, they say, it is better than never. For now, ironically enough, our government is largely and mainly marred by bad governance.
Interest rate cut will help consumption-led recovery to the industry for products like car, bike, fridge and washing machine sales. I think you must aware that most of the banks are ready to give car and home loan @ 10% pa. But no one is willing to avail that loan facilities because their salary bill is not increasing as like the inflation / price rise. Middle class is struggling for meet out their monthly expenses. We have enough liquidity in our system. Our PSU and private companies are having cash and cash equalent of almost rs. 9 lakh crs. The problem is no one is ready to invest that amount for expanding their business for increasing the infra spending and increasing the supply due to government`s red tapism, corruption and policy paralysis. This is the problem which is pulling down our gdp and economic growth and not due to higher rate of interest. Anyway we can expect 25 bps rate cut from RBI to cheer stockmarket and FM PC.
There are 3 ways the decision on 29th can go. (1) No rate cut by sticking to his original philosophy " No reduction in inflation, no rate cut". RBI was talking 4 - 5% inflation range as comfortable. There is no way , the economy is going to reach that level in the next 12 months. So the rigid stand of RBI has no case of holding of rate cut, but should increase the rate. (2). Rate cut by 25 basis points . The middle path. No case for rate cut, no case for crippling the economy. Like saying " I am not convinced, but I have no way out" (3) Rate cut 50 basis points . Similar to April 2012 siutation, there is no case for rate cut, but the future is so bleak there cannot be any better situation than today to give a rate cut, if at all to give. Anyway there will be no rate cuts any time sooner , be it 50 basis points in one go. Take a bitter pill once rather than smaller doses regularly.
Any other option other than these 3? May be one coupled with CRR, SLR tinkering. Markets have already factored the 25 basis points. So, only 50 basis points rate cut will bring cheer to markets tomorrow, but the chances are only 1/3rd (equal chances for all 3 options). If it is otherwise, we will see sharper correction in indices tomorrow.