October 4, 2015

Across the aisle | Cut in repo rate: Now, do the heavy lifting

As they say, it is “done and dusted”. The Reserve Bank of India (RBI) finally met the expectations of the Government, business and a number of economists and cut the repo rate by 50 basis points. The Governor, Dr Raghuram Rajan, was hailed as a hero. He would have been hailed as a hero even if the RBI had cut the repo rate by 25 basis points or not made a cut at all. There are enough economists who would have supported either decision. Bankers would have anyway supported any decision; the RBI is their regulator! All this is not to be understood as criticism of RBI’s decision. I think it was the right decision, and I immediately welcomed it. I also felt that it was long overdue — at least by two to four quarters —and the delay may have cost quite a bit of growth. To understand the RBI’s cautious moves, one must understand Dr Rajan. He is an intellectual powerhouse, a tenured professor at the University of Chicago and the author of several path-breaking books. Independent, orthodox and cautious are the words that best describe him. <strong>Fiscal Consolidation on Track</strong> Mr Rajan believes that price stability is the main objective of monetary policy. He would know that inflation targeting is not done as much by changing rates as by managing inflation expectations by signalling to the market that the central bank is committed to a certain path. He would also know that small changes in the interest rate usually do not have a significant impact on inflation unless inflation expectations are anchored. With this background, let us consider how well the RBI has conducted monetary policy in the last 24 months. The graph (left) shows year-on-year Consumer Price Index (CPI) inflation and the repo rate since September 2013. While reading the graph, please remember that the RBI had, in its monetary policy statements of 2014, set the target of inflation at 8 per cent by January 2015 and 6 per cent by January 2016. To its credit, the Government remained committed to the path of fiscal consolidation announced in 2012 following the report of the Vijay Kelkar committee. The fiscal deficit was to be contained according to the following time table: March 2013: 5.2 per cent March 2014: 4.8 per cent March 2015: 4.2 per cent March 2016: 3.6 per cent March 2017: 3.0 per cent In each year up to March 2015, both under the UPA and NDA, we have done better than the target. And then came the oil and commodities bonanza. The collapse of prices made the Government’s job easier. It could expand public expenditure and at the same time achieve the fiscal deficit targets. <strong><a href="https://www.youtube.com/watch?v=3mbeyr7bZb8" target="_blank">WATCH VIDEO | Explained: RBI Cuts Rate – What It Means For Customers Like You </a></strong>
September 27, 2015

Across the aisle | Encryption Policy: Act first, think later

The zeal with which the policy was announced was matched only by the speed with which it was withdrawn. It lasted all of Monday morning to Tuesday evening. Meanwhile, a scapegoat was found — a poor low-level scientist — and everyone else washed his or her hands of the draft National Encryption Policy. It was indeed a draft, but it […]
September 20, 2015

Across the aisle: Refugees, immigrants and humanity

As long as humankind has existed, misery has been its companion. Poverty, disease, civilian strife, persecution and wars have brought untold misery to humankind. There is no greater misery than having to flee one’s home and hearth and seek refuge in another country whose people may speak a different language or practise a different religion or follow a different culture. […]
September 13, 2015

Across the aisle: The OROP whodunit

The other mystery story running on our screens is One Rank One Pension (OROP). Actually, there is no mystery. All the facts are recorded and documented. However, in the race to claim credit (and disown criticism), the OROP issue is being presented as a big controversy shrouded in mystery. Get facts right Let’s get the facts right. The Indian Armed […]
September 6, 2015

Across the Aisle: The rise and rise of intolerance

Among the many myths about Indian society is an ancient one — that we are, and have always been, a tolerant society. It is an old yarn to cover the prejudices, discrimination, oppression and violence that have, unfortunately, marked our history. The intolerance is most pronounced when it comes to matters concerning identity — not religious identity alone, but every kind […]
August 30, 2015

Across the Aisle: At last, will we have an economic agenda?

In August, the rupee has depreciated by about 3.3 per cent against the US dollar. Such volatility and decline in asset prices are stressful. The Government will scramble to do something, and even if it succeeds, success will come at a cost. Contrary to popular belief or desire, in a global economy, the Government is no longer the lead player, […]
August 23, 2015

Across the Aisle: Will someone please read the tea leaves

The Government seems to think that negative inflation in the wholesale price index is a sign of economic good health. It is not. It could mean that demand is sluggish. Besides, it depresses prices for the producers, especially the farmers, leading to distress in the agriculture sector. The Prime Minister is entitled to choose the place and subject of his […]
August 16, 2015

Across the Aisle: PM Narendra Modi has promises to keep

June 2015 marked the seventh straight month of decline in exports, year-on-year. During the seven-month period exports have shrunk by 14.11 per cent. The Federation of Indian Exporters Organisation has warned that exports may decline significantly even in volume terms which will lead to lay-offs and retrenchments. Prime Minister Narendra Modi addressed the nation from the ramparts of the Red […]