HOW MONETARY POLICY WILL IMPACT SERVICES SECTOR IN INDIA?

With the recent change in the management of country’s central bank, Mr.Urjit Patel has now accepted responsibility as the Governor of RBI. There was a huge controversy regarding the departure of Ex-RBI Governor Raghuram Rajan, who apart from being an economy stalwart is a great academician too. His absence has created a huge vacuum that the present RBI governor has to fill. So there is a huge pressure on him to review the monetary policies of the country.

India is currently performing well in these three sectors-Outsourcing, Real Estate and Technology Exports. In a short run, the monetary policy affects the demand for commodities, prices and employment of a country, particularly in the three mentioned crucial sectors.

After a recent cut in the base Repo rate, Mr. Urjit Patel has shown that for now he will follow the footsteps of his predecessor. It is quite astonishing how in the light of global economic downturn, Indian economy has fared much better than its foreign counterparts. If we look at the specimen, contrary to economic policy in relation to outsourcing, real estate & IT sector, the contribution of outsourcing and technology related areas is quite high, while in real estate sector the contribution is significantly lower. However, it can now grow owing to repo rate cuts which will increase the purchasing power of consumers.

Speaking of Foreign Direct Investment, Real Estate has seen a downfall in investment for the past couple of years. The recent decision by the Government of easing of norms in Real Estate Investment Trusts (RETIs) and FDI policy reforms will go a long way in stimulating growth.

The global economic downturn has been a sort of boon for the Indian economy. While periodic rate cuts have helped increating enough liquidity in the market to invest in other sectors as well. While the ever increasing investments by the other countries, facing an economic crunch, have actually kept the Indian Economy stable.

Now, we only hope how our current Governor fares well in designing the monetary policy in a way that appeals to Foreign Investor (FI). The desirable components for Foreign investor given below are:

• Lower Taxes
• Better Return on Investment
• Expert Staff
• Optimized Level of Inflation.

The effect of repo rate however, is unlikely to deter any FDI in future as those are mainly focused on long term holistic growth. These rate cuts mainly serve to boost the under producing industrial sector due to a global decline in demand. Perhaps, with eased interest rates there will a surge in the domestic demand, thus reinvigorating the industries.