The three little piggies.

Politicians and their pet pundits constantly advise Indians to invest in the stock market. After years of bitter resistance from unions the government has allowed the Employees Provident Fund to invest in stocks. Rising markets, fall in the price of gold and constant repetition enticed individuals to buy into the stock market fiction and invest in equity mutual funds. Indians trust physical assets, such as gold and real estate, over equity because they see stocks as speculation at best and gambling at worst, but the stock market gives very good returns over the longer term. Some say that markets give the best returns. What experts do not understand is that people do not trust the government or the regulators who, they think, are in collusion with business people to con us. That feeling of mistrust will have been exacerbated by the falls in stock prices in the last few days, though the Sensex has ended positive today. The rupee has fallen to Rs 66 to the dollar. We are told that we can dismiss these falls as temporary because our economy is in a ' sweet spot '. Inflation and the current account deficit are low because of very low commodity prices, especially oil. Our interest rate is relatively high, which gives the Reserve Bank huge latitude for softer monetary policy to stimulate demand. Foreign exchange reserves at over $350 billion are sufficient to reduce volatility of the rupee, the RBI said. Banks maybe sitting on bad loans of Rs 3-6 trillion, which means that banks are reluctant to lend, and the total debt of Indian companies are an eye-watering Rs 32 trillion which means huge interest payments. A lot depends on what the Federal Reserve does in the US. The opposition will not allow the government to pass any reform bills because they sense that without reforms the economy will not be able to withstand the global crisis and if growth stays weak they will have a much better chance of coming to power in 2019. The rupee and shares have fallen but real estate is still going strong, prompting RBI Governor to say that prices must fall. Bank lending to real estate is rising but fewer properties are being sold because prices are too high, the government has clamped down on black money and states have increased registration charges to very high levels. Builders have put all their hopes on a substantial cut in interest rate but a low interest rate may cause the rupee to fall further. That will result in higher import costs and a rise in prices. Like the 3 little piggies the Congress built our economy on sand. Only one weapon will work and the government must use every trick to pass the Goods and Services Tax bill. Or else, bye bye.