If India - or any country - has any illusion of a global coordination and global effort to work as one planet (which was the order of the day in a post-Lehman environment) they would be wise to take heed of what senior representatives of the US central bank had to say. At the recent Jackson Hole conference in Wyoming, USA the Head of the Atlanta branch of the US Federal reserve correctly pointed out that the Fed was accountable to US citizens and that Fed policy was based on what was good for US economy - not based on what the impact would be on other countries".
Those G-20 meetings were obviously photo ops in which the leaders of the developed world could show their global credentials and get all the naive heads of Emerging Market countries to stand by their side in their hour of need. Now that the US economy is showing some semblance of normalcy, it is time to dust off the unwanted and go back to the "local" mandate song.
Local politicians to blame
The fault, as Caesar would have said, lies not solely in the Fed, but it lies in us. Charmed by the QE tricks of the Fed, Indian politicians went to sleep at the wheel and stopped taking any steps to make the local economy stronger or to reduce its financial dependence on global portfolio flows. Finance Minister Chidambaram was busy using his oratory powers to talk up markets but hot air only goes a limited distance (see Graph 1 below). From August 1, 2012 (when he became the Finance Minister) through August 27, 2013 the S&P BSE-30 Index gained +5.5% in INR but has lost -11.4% in USD against a decline of -1.1% in the MSCI EM Index
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| Source: Bloomberg |
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