Thursday, 28 August 2008

Inflation woes

The RBI came out with the inflation number based on the WPI index today and after a long time the inflation is lower than the expectations of market experts. This should ideally lead to RBI doing a rethink on its liquidity strangulation strategy, let's hope now that Dr. Reddy will prescribe a milder medicine and make money a little cheaper for lesser mortals to borrow and go about their business without worrying about working hard to pay the banker. A solution to the stand-off would be to stop tinkering with the liquidity and let the Government (through the Cabinet) manage the issue. Only public spending is the panacea for all the woes of the economy. If the Government does not get up from its slumber and pump prime the economy by spending money on economy and stop doles (lot of them, loan waivers, 6th Pay Commission, raising of tax slabs, etc.), then the economy is going to stumble further. We are not facing inflation because of excess liquidity but because of limited supply. I appeal to the powers that be, to be kind enough to unshackle the producers and instill confidence in them. If supply is taken care of (here I mean supply of goods not money) the economy will surely improve. That's it for now, more in the next post...