It is not even a week. To be more precise, it’s Â been just six days. The first event happened on last Saturday in Beijing, the second happened in India on 16th, that is today.
Last week, precisely on 11th September, China decided to bring out its inflation number. Â The practice was to bring it out on a working day than on a Saturday (11th September was Saturday).
Financial markets globally were unduly worried about high inflation numbers, and thereby anticipated likelihood of a stubborn response from PBOC in tightening rates. The explanation was â€“ China wanted the world to digest its action over the week-end before markets reopen on Monday.
Inflation came in expected lines, and monetary tightening didnâ€™t finally happen. Global financial markets rallied on Monday.
On 16th September, Â RBI in India hiked rates as India has been known Â as â€˜Inflation Nationâ€™ Â globally. Market did factor in that. However the tightening was more aggressive than the expectation of the market.
Within an hour of the verdict, Indian stock market rallied up by more than one percent point.
True, markets seldom send the right signal â€“ more so for the shorter period of time.
Sometime back, a tweet said: â€˜Mahatma Gandhi died saying ‘Hey Ram‘…present lot Indian policy-makers starting from Manmohan to Montek would die saying ‘Hey GDP‘â€™.Â
GDP is not an end by itself. It is a means to an end – to the objective of havingÂ better quality of lives for the vast majority of the citizens of any nation.
One canâ€™t play tennis by looking at the score-board. Â India would do better, if it learns policy-making that enables China to grow at more than 10% (1) withÂ low inflation rates, (2) with poverty reduction at a faster or similar rate than the GDP growth rate over the last two decades,Â and (3) with increasingly higher literacy rates, than alone chase the GDP figures of China.
When China overtook Japan as the 2nd largest economy in terms of GDP recently, one prominent policy-maker of China played down the development by stating China needs to improve the lives of its millions of underprivileged, and that remains the primary goal of China. India does not focus on the nearly 70% of its poor-population who badly wait for basic and fundamental developments for yearsÂ amidst the country’sÂ unsatiable qwest for GDP.
The relevant question is: How much speculative capital inflow or outflow within a period can cause financial destabilization inÂ India or in China? For India, the answer would be less than $20bn for any year; for China â€“ itâ€™s anyoneâ€™s guess.
India can absorb trillions in its infrastructure, however that money never comes (as it does not returnÂ super-profit). That will help India achieve global standards of inflation, poverty and illiteracy to achieve the broader objectinve on improving life-standards of its vast majority.
PBOC expressed its concern about how a rapidly depreciating dollar can cause asset bubbles in commodities and inÂ assets of emerging markets. Indian policy-makers take pride inÂ how Indian financial market has been outperforming others (as a sign of confidence) to beat the drums of ‘domestic consumption’ story, without bothering about fundamental liquidity rallyÂ that is driving its stocks higher.
New Delhi thinks like Washington and not like Beijing, as if the poverty figure in India is asÂ low as that in the US. New Delhi believes in freewheeling capitalism, at times more than what the wild west believes in. Incidentally this same form of capitalism and free markets shook Washington up as recently as in 2008.