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US Fed decision a breather: Will govt & RBI seize the chance to set economy in order?

NEW DELHI: With the US Federal Reserve surprising markets with its decision not to start tapering its quantitative easing programme, analysts and economists are of the opinion that the Indian economy has got the much needed chance to repair its weak macros.

Indian markets had been reacting to fears of a tapering in US stimulus programme and with the Indian economy plagued by twin problems of high Current Account Deficit (CAD) and fiscal deficit, global investors had expressed concerns over the attractiveness of India as an investment destination.

With the fears of a capital flight reduced, analysts feel that the government and Reserve Bank of India (RBI) have got the elbow room to implement strong reforms, in order to curtail the twin deficits.

Nilesh Shah, Director at Axis Direct told ET Now that this is a good opportunity for India. "Once the party is over, we will have to go back to the basics. In some sense Fed has given some amount of time to put our house in order and this is a great opportunity," Shah said.

"We have bought time to make our house in order in terms of revival of investment. The opportunity is there for us and now what we do on the revival of investment will determine how the markets will shape up over the next quarters to come," he opined.

"If we can get back to revival of investment, then certainly people will be far more positive to India. The Fed has given the elbow room, the RBI has taken various innovative steps which could be supportive of growth without putting pressure on inflation," he added.

Mohammed Apabhai, Head, Asia-Pacific Trading Strategies at Citi feels that the Fed has given Indian government an opportunity to repair things on the fiscal deficit front. "If there is an opportunity which has been provided, then the government can do a lot of repair on the fiscal side. The government has had a wake up call about what could happen if they do not get their house in order," Apabhai said.

Ramesh Damani, Member of BSE also feels that both the RBI and government have got a breather from the immediate fallout of a likely Fed tapering. "Chidambaram and Rajan have got some breathing room because emerging markets will attract flows again. Because we have some breathing room out here, we have some more time to structure policy," Damani said.

"Indian problems on economic front have to be solved, but we have got some breathing room," he added.

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