Tamasha - India's favorite genre

El Nino, Lost crops, La Nina, IMD,
We didn't start the fire  
No we didn't light it  
But didn't try to fight it

Now, I'm a big fan of the Billy Joel song, but I had to edit the last line (and the first one). India (and Indians, by default) could well be headed for it's worst  year in the last decade. No matter what our meteorological department says, we haven't seen rains this year, at least in the south. August rains are predicted to be pretty strong, but the precipitation lost in the last two months could be costly. Though it may have sounded like one, this is not a weather update, and this could have major implications on our lifestyles in the coming months.

Sugar hovers at around Rs. 33-35 a kilogram. How about sugar at Rs. 60 or 70? The whole of India (especially the North) would go into a tizzy. The present Sheila Dixit dispensation in Delhi got the first real taste of success after the onion price rise in the run up to the elections that brought down the incumbent BJP government. How about aaloo at Rs. 50 per kilo? And how about Rs. 60 for a kg of rice? If you thought the Food Corporation of India and their rotting warehouses would save us from a stratospheric price rise in food grains (like the Strategic Petroleum Reserve and their salt domes filled with oil in the US), you could be in for a rude shock.

Why is this important except from a pinch-on-my-wallet perspective? Well, the RBI has its first quarter review of the monetary policy on July 31. There are a bunch of analysts that are expecting surprises like interest rate cuts (India's Reserve Bank has surprised analysts more than any emerging market central bank in recent times). That my friends, is wishful thinking. I could be wrong, but at some level, I think the analysts could be in for a surprise. How about a hike in key rates? 

A possible drought and the consequent food grain price inflation will be textbook whipping boys for raising or retaining key benchmarks. Fair enough! But coupled with a lame government, this is a disaster that India is waiting for and walking into with a devil may care attitude. Reduced industrial activity, thanks to high borrowing costs and zero-luster reforms, will ensure that our RIP as an attractive investment destination is written in glowing letters.

Oh, and since we are on the topic of governance, the only policy action that got some sound bites recently is the Karnataka government's decision to spend 17 crores on poojas (prayer ceremonies) to appease the gods of rain. Seriously? I prefer the central government's inaction to this paleolithic state intervention!

In all of this, our currency will continue to fall. Unless crude falls substantially, I do not think there will be any real kicker for global growth. The only Au lining in this otherwise dark cloud is the deluge of superhero movies. I think they are some kind of a leading indicator of the markets bottoming out - too much pessimism- the paranoia being overdone. I would like to believe that, but if I had to put my money where my mouth is, I would short our currency, our government, and our central bank.

As for tomorrow, look at the way our benchmark indices moved today - big rallies with the Sensex rising about 300 points and the Nifty a 100 points, anticipating positive cues from the RBI. They're setting us up for something. Like I said before, I could be wrong, but (I'm gonna stick my neck out) the indices will see red tomorrow.

Depreciating Cs

Well, the two Cs are depreciating. In the middle of simmering fuel prices, Crude oil has depreciated by about 17% in the last one year. Indians should have rightfully expected some relief from higher fuel prices. But our Currency decided to play spoilsport. Indian Rupee fell by a staggering 27% during the same period, wiping away crude price gains and further burning holes in our pockets.

The RBI announcement last week to remain hawkish further spooked the markets sending the Rupee closer to the retirement age in government jobs. A few more jabs, and it will touch 58 to the US Dollar. RBIs hawkishness, twin deficits, high inflation, and a frozen government are all things that we are used to by now.

What surprised me though was what RBI deputy governor Mr. KC Chakraborty said when asked whether falling crude will help arrest inflation:  "The fall in crude prices has been partly offset by depreciation of Rupee. In rupee terms, oil prices have not gone down much". Thank you very much Mr. KC. There you go - a text book answer. He should have been in a classroom. And while he was at it, he could have sidestepped the question about how hawkishness in some way contributes to the falling currency.

He also went on to make a case for people who save - and how low interest rates in a high inflation environment could hurt those who save money. I'm not going to say anything about that, because I don't have anything left to save after paying my bills. All I can say is that we need more doves than hawks in RBI now. So sing with me, Kabootar ja ja ja ....