Stagflation and Indian Economy

The Global stagflation, is the price the world economy has to pay for the American misadventures (War). They are still burning their tax-payers money resulting in the present crisis. (refer: Global Recession a by-product of WAR).

To fight recession there are two main alternatives before any regulatory authority - increase money supply or tighten monetary policy, both of these steps have their side effects.

If, Money Supply is increased, although it stimulates economy and generates employment but it increases INFLATION.

Now, if the Monetary Policy is tightened, no doubt it will increase interest rates (promoting savings) and reduce inflation but it increases unemployment plus it reduces Output Growth.

Due to the good standard operating procedures (SOPs) of Reserve Bank of India(RBI), and Nationalization of Banks ( by Indira Gandhi, Prime Minister), Indian economy has stronger roots. The impact of recession is felt all over the globe and so to some extent by Indian Economy.

RBI is walking a tight rope and doing the balancing act between inflation and growth, but injury takes time to heal. The recovery phase may start by the end of 1st. Quarter and may be visible by 2nd.Quarter i.e. late July'09.

Every situation has a positive silver lining. In this situation Long Term Investors ( Min. 3-5 yrs. of Investment) definitely stand to gain. Invest as you would invest in a 5 yr. FIXED DEPOSIT.

Small investors should stay away from day-trading and at best can take risk with Short Term Investments i.e. picking at levels of under 2710 and booking profits at 2910+ levels. (Ref: NSE Equity Trading Tips)