FE Editorial : Over to government now

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SummaryWith RBI doing its bit by cutting repo rate 25 bps, indeed more if you keep in mind no one expected the 25 bps CRR cut, the focus is once again back to the government and what it plans to do to fix India’s growth prospects.

sharp rise in repatriation of profits on investments and interest payments of FII/ECB debt. Given that all 3 added up to $7.8 billion in Q2 FY13, this means India needs so much FDI just to keep the FDI balance at zero. And with FDI inflows just financing a fourth of CAD, as compared to 100%-plus in just FY08, this makes India very vulnerable to external flows. Add to this the rise in corporate exposure to ECBs—$104 billion at the end of FY12 as compared to $41 billion at the end of FY07—and the rise in FII investment limits in the bond market, and the vulnerability gets magnified. That, of course, is the reason behind the FM’s global roadshows and it’s also the reason why GAAR was postponed and why, eventually, a solution will be found to the Vodafone retrospective tax amendment.

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