The monetary policy review announced by the RBI was like a much awaited blockbuster – well, going bust! Speculation was rife which way will the RBI swing – will it cut the rates further amidst talks of slowing growth and the economy facing harsh and critical reviews from global rating agencies or given the runaway inflation, will it again whack the stick on the consumer and industry and increase rates.
Well, the RBI has chosen the wise step – do nothing. It has done so after scores of rates hikes failing to bring down inflation but succeeding in stifling economic growth. The ‘no-action’ policy is a rude reminder to the government to get over its inertia and do something to revive the flagging economy. The fact of the matter is that since last two years, RBI was torturing the victim rather than punishing the culprit. Two years of relentless rate hikes in the name of rising inflation was a self defeating exercise, the ramifications of which I had warned about in one of my blog posts long back.
This inflation is not as demand driven as it has been made out to be. We Indians have not suddenly begun increasing our intake of food rich in protein and the planning commission favourite “high-calorie” contents. Yes, the purchasing power of people in India has been rising and yes the consumption patterns have changed towards higher quality consumption. But this is not enough to justify the magnitude of rise in prices of food items.
If the farmer who grows potato is getting Rs 2-3 per kg for selling in the mandi and same product is getting sold at prices more than ten times in the retail market, there is something seriously wrong with our supply chain and the government, being a democratic government, has to explain. The fluctuations in prices of food are way too high to be just demand-driven; there are serious supply side issues to be resolved in ensuring that the consumer gets his food at reasonable prices.
Another hoopla that has been created by the economic experts is about freeing the fuel price of subsidy and letting the fuel be market-determined and as if this single step will cure our economy of all its ills. I beg to differ. First of all, we have to bring down taxes on fuel at both the state and the central level. It is baffling that the government taxes and subsidises the same product. This does not make clear whether it wants to tax or benefit the end user. Secondly, why are we running a bankrupt, no-good airline whose oxygen mask is worth thousands of crores of taxpayer’s money? Why that money cannot be diverted to subsidising people from petrol? Our PSUs are given monopolies in the market to be of benefit to people. Yes, they cannot be loss making enterprises, but the shares of ONGC, Oil Indian Ltd and others are not exactly plummeting in value and their balance sheets do not exactly paint a grim picture. If one segment of their business is making loss while others are making up for it, why it cannot be carried on till the international prices cool down, in the interest of the public? Otherwise if these companies have to be run on a profit agenda, then let them compete with best international companies from abroad!
Also, it would be interesting to know the amount of oil-exploration projects that have been given a go-ahead by the government in the last one year. What is the R&D on alternative fuel? What is the amount of wasteful expenditure at the central and state level? Why does the Chairman of the Planning Commission spend crores of rupees on his foreign travel? Though he is not the only one among our dignitaries who love to travel abroad on taxpayer’s money.
Attacking the rating agencies for their criticism will do no good to us. They are just doing their jobs and its heartening to see the objectivity they are maintaining. We have to look at the reality and take concrete steps to put our house in order. But I do not really see that happening because the ruling regime is not foreseeing any threat in the form of a credible alternative for the people in the next general elections.