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D.Muthukrishnan (Muthu), Certified Financial Planner- Personal Financial Advisor

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Good days will continue

Posted by Muthu on November 28, 2014

We’ve been writing how both favourable macro factors and this government’s right steps are bringing good days for the country.

In yesterday’s OPEC meeting, it was decided not to cut the oil production despite recent fall in their prices. As I write this piece, the Brent crude is trading at around $72 a barrel, fall of close to 7% in a single day. If you recollect, crude was trading at around $115 a barrel few months ago.

U.S. Shale gas is a biggest threat to OPEC and to discourage its production, OPEC has allowed crude prices to fall. Many analysts are now predicting Brent crude falling up to $60 a barrel. They also opine that the ability to produce shale gas would act as a deterrent to rising crude prices in future. If there is no major change in geo political situation, it looks like lower crude prices are likely to continue in future.

This is great news for India. Already petrol and diesel prices are market regulated. There is no longer any subsidy on the same. Inflation has been falling for last few months and lower crude prices would ensure its continuity. There is no need to worry whether or not RBI would cut rates in December. If not December, it may happen in February or April. It is now the question of when and not whether. The direction is very clear.

Using this opportunity, government has already capped subsidy for domestic LPG at Rs.20 a kg. Not only that, from April 1’st 2015 domestic LPG would be sold by dealers at market prices and consumers has to claim the subsidy which would be directly credited to their bank accounts. This would greatly reduce the slippages and streamline the LPG subsidy.

All the above would have major positive impact on fiscal and current account deficit. Fiscal prudence would get us better sovereign ratings. Falling interest rates would revive credit growth. This would help our economy and corporate earnings to grow.

Raghuram Rajan has been doing a wonderful job as RBI governor. RBI has yesterday published rules for payment banks and small finance banks. This would ensure financial inclusion happens really rather than mere opening of bank accounts for the unbanked. The face of our whole banking industry is likely change in the years to come.

These steps are revolutionary in nature in ensuring the reach of banking to the entire country. Financial inclusion would further aid growth.

So good days will continue.

Some people accuse the government of merely being lucky (i.e.) being in the right place at the right time. No doubt luck is also helping them but we cannot under estimate the right steps government and RBI has been taking.

The answer to critics is that it is better to be ruled by lucky people than unlucky ones.

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