Tuesday, 28 January 2014

Indiana Jones delivers a dud again!

It has been a long time that I have written on the economic policy, given my propensity to criticise the economic policies and particularly the monetary policies, I had thought that my days as a critic were numbered with the appointment of a charismatic and learned RBI Governor (Indiana Jones). Alas! that was not to be. The governor blinked again, isn’t it ironic that once one gets on to the chair of the governor one tends to think in terms of the establishment only and also think that all that is done using the monetary policy tool is right?

Lets take a look at the Governor’s statement. The first line states that repo rate will be increased by 25bps and in the ensuing paragraphs (specifically pt no 4 and 5) he goes on to gloss over controlling inflation and how inflation is an unjust tax on the people.

I have a funny feeling that economists always speak something and do something else. (I hope you get the drift… we are surrounded by economist politicians right from the top of the pyramid, everybody has been a finance minister ;))

I would like to reiterate again and again the doctor sitting at RBI HQ does not have the medicine required for the economy and the medicine lies in the cupboards of the FINMIN or the PMO. Unless the political bosses start thinking about supply side of the economics and make things easy for the producers and the processors. It is going to be an uphill task to manage lower inflation rates. Inflation in India is a supply side phenomenon and not a demand side phenomenon, no amount of increased interest rates is going to dampen the buying power. Increasing the producing power by enabling faster credit growth to the industry, approve projects, unshackle agriculture and then see the growth as well as stable prices.

Let’s pray until this happens. All comments are welcome