Of Paper Tigers And Real Ones

It is seldom that bad times come to an end

abruptly. Just when the Indian Finance minister had forecast a revival of the economy from

June onward and the quick estimates of the finance ministry had indicated a not-so-torrid

November ''97 and beyond, comes the Asian Tigers crisis. Long regarded as the epitome of

industrial prowess and exemplified worldover for their meteoric rise, the current monetary

crisis, ranging from Indonesia to Korea, has indeed rattled the confidence of financial

players worldwide. In that sense, the insularity of the Indian Rupee stands as a

vindication of our policies and the pace of reforms that has been criticized by several

western worthies in the past as too slow, and too unsure.

However, the notion that Indian Rupee is

completely insular is also wrong. As the Rupee''s not being convertible on the capital

account doesn''t any way decrease the vulnerability of the currency. RBI''s actions went a

long way in cooling off the free fall of the Rupee. However, its actions will have wider

ramifications. For one, the glee on the face of the software exporters seems to have been

stifled. Second, with the cut in liquidity and increase in SLR and the consequent increase

in PLR, inflation is likely to rise, perhaps sharply. This will be clearly reflected in

the prices of consumer and white goods, and products such as PCs.

As it is, there are rumblings that many of

the MNC brands are under pressure to raise prices. By making the market illiquid, the

pressure on prices will only escalate, and it is possible that some brands might actually

witness an increase in prices during this period.

Another by-product of this action is that

corporate buying, which was not very active in the first six months, will once again

nosedive. With the prices rising for home market PCs and the corporates shying away from

buying, the current fiscal may turn out to be the swansong for many a retail operations.

In any case, what is abundantly clear is that there will be little hope for reprieve in

the next three months and the sooner we accept the rules of the game the better off we

will be.

L Subramanyan