Friday, September 30, 2011


(Dated 30.09.2011)

1.   Economic Times  has declared its list of TOP 100 MOST TRUSTED BRANDS FOR 2011. The TOP 10 in are (1) Colgate (2) Lux (3) Airtel (4) Lifebuoy (5) Nokia (6) Dettol (7) Britannia (8) Vodafone (9) Maggi (10) Close-up.
2.   The brand Attributes considered are (1) Always Maintains a High level of quality 92) It is worth the price it commands (3) It is the one brand that I would definitely consider if I have to buy that product or service (4) It is a very popular brand (5) This brand is Unique and has something  that no other brand has (6) It evokes a feeling of confidence and pride among its users (7) It is a special brand with unique feelings associated with it. Interestingly, Airtel has moved from 129 in 2010 to 3 in 2011.
3.   India’s Most trusted (Top 10) service Brands are  (1) Airtel (up from LY’s 10) (2) Vodafone (down from LY’s No.1) (3) BSNL (down from LY’s No.2) (4)Idea (up from LY’s No.15) (5) SBI (down from LY’s No.3) (6) Big Bazaar (same as LY) (7) Tata Docomo (up from LY’s 12) (8) Tata Indicom (down from LY’s No.5)  (9) Aircel (up from LY’s No.19) (10) ICICI Bank ( down from LY’s No.7)
4.   The Individual segments present a very curious mix of results in top 3 spots as follows :. (a) Beverages(Hot) :– Bournvita, Horlicks and Tata Tea; (b) 4 wheelers (auto) :- Maruti, Tata Motors and M&M; (c) 2 wheelers (auto) :- Hero Motocorp, Honda, Bajaj; (d) Consumer Durables :- Samsung, LG, Godrej (e) Beverages cold :- Coca-cola , Thums Up, Mirinda (f) DTH :- Tata sky, Airtel Digital TV, Dish TV (g) Apparel :- Raymond, Lee, peter England (h) Hair Oils :- Dabur, Parachute, Himani NavRatna (i) Oral Care :- Colgate, Close-up, Pepsodent (j) Food Products :- Britannia, magi, Tata Salt (k) Mobile Handsets :- Nokia, Samsung, LG (l) Retailers :- Big Bazaar, Reliance Fresh, Pantaloons (m) Fabric Care :- Surf, Rin, Ujala (n) Personal care : Lux, Lifebuoy, Dettol (o) Household care : All Out, Good Knight, Vim
5.    Investors need to keep in mind, the moving positions of the Brands – as this will translate into sales and profits finally – in the Market place.
6.   AIMA (All India management Association) had its 38th National Management Convention at Delhi on 28th and 29th, of September, 2011. The theme was “Inclusive growth : A Challenging Opportunity.” The AIMA feels Inclusive Growth must be the vision the country must have now. While the theme is very attractive in itself, one expects a plethora of Ideas from Industry Managers – for achieving such Inclusive Growth, which is a significant Goal for India.
7.   GAIL (GAS AUTHORITY OF INDIA LTD) has acquired 20% stake in Houston based firm, Carrozo’s Eagle Ford Shale acreage for $ 95 mn. GAIL Global now wants to – pursue various upstream and mid-stream  opportunities including LNG export to India. This experience will help GAIL  in the future Indian shale gas bidding rounds opening in future.
8.   Mahindra & Mahindra – rolled out its first Global SUV at a cost of around Rs.10.8 lakhs to Rs.12.88 lakhs. Apart from Indian market, it is aiming at South Africa, Australia and Latin American Markets. Anand Mahindra wants M&M to be seen as a Global company with a Global product line up.  He says – his focus will be on bottom line which he will not compromise.
9.   Govt’s borrowing needs in the second half of this year is likely to go up by 13% or by Rs.52.8 thousand crores – to a total of Rs.2.2 lakh crores. Small savings had a net outflow of Rs.26,000 cr in the 1st Qtr. So, states also may need to borrow more. Private credit also may pick up during the second Half. The yields on Bonds may therefore rise. Cost of borrowing may go up for Government and private borrowers. With Inflation not coming down – but Growth figures clearly depressed – we need to see what RBI will do next. Inflation has not been responding to RBI interest rates increases during the last 2 years – as this inflation can only be managed by Government control measures etc and not by RBI monetary Policy alone. This has been pointed out in this blog also much earlier and is now being voiced by many experts. India can not afford to stifle its growth path at this point of time – and RBI will need to chip in by rolling back its interest Rates. But, Government will need to micro manage inflation through specific product related measures. But, periodically, we are witnessing an unwitting logic that India is better off than many other countries on these parameters. This is not correct. Those countries are reeling under past lapses – which are just not present in the Indian context. India can afford to grow at double digit rate – even if RBI cannot bring down inflation from double digits. Both Growth and Inflation control must be looked at seriously by all economic Ministries of Central and state governments together. We are not seeing many such agricultural, Industrial and other economic ministries meets (centre and states) for such specific Agenda for quite some time.

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Thursday, September 22, 2011




Readers of this Blog will be aware that this Blog had sent several, detailed suggestions to the standing Committee headed by Dr.Abhishek manu Singhvi – on the Lok Pal Bill,2011 – which can be read in the articles at the following 2 URLs :

The Rajya Sabha secreatariat has acknowledged the receipt of the same (vide their letter no.RS.6/2/2011-P&L dated 13.9.2011)  and has assured that “ your views will be taken into consideration by the committee headed by Dr. Abhishek Manu Singhvi.”

This Blog thanks the Rajya Sabha secretariat – and will await the deliberations in the committee and finalization of the Bill.

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For the last one decade and more, Indian Markets at many places are flooded with Chinese Products. These products are cheaper compared to Indian Products – but not very great in quality. Some electrical and electronic products are certainly more innovative than Indian products.

And, many of these products are replacing traditional Indian products – because, Indians, as a rule, seem, not to want to buy any products MADE IN INDIA – if some thing made out of India (any where outside) is available in the market. Correct me, if you are an exception.

But, I am not amused. Being not in active politics – these problems attract my curiosity and attention. I find, Chinese products, more than any other country’s products, are replacing INDIAN JOBS – and Indian incomes.

Compare it with the US. USA has been fighting a 9% unemployment Rate as its most important national problem – as though life depended on that. Not a day passes without President Obama urging his country men and the US Congress to approve his Job creation Plans. And, I think, President Obama is right. From 7.5% in July 2009, it has climbed to 9.1% now. The average rate of unemployment in US from 1948 to 2010 was 5.7%, climbing to a high of  10.8% in 1982 and a Low of 2.5% in 1953.

In India, our stock markets respond to any change in the US Job Market – in a very big way. This, in my view, is foolish – as US unemployment rate has no great impact on our companies’ or economic performance. It never had. When, US was reeling under Bank closures, closures of its major companies  and a huge housing market downturn – India did remain healthy.

But, that is not the real point to look at now.

What is the unemployment Rate in India? Do we have any idea? No one even tries to measure this statistic in India. For Government and even Opposition Politicians, this seems to be the most unimportant thing.

For US, it has always been the most important statistic. People must be employed. That is the TOP priority. Next comes Growth. Next comes inflation. Next comes budget deficits and so on.

For a while, let us also think, as US thinks, of our unemployment problem a little more seriously. Is it close to 50%? May be. How much is it in your family? In your neighbour’s family? Since, there are no reliable official statistics, this is a good way to measure unemployment in India. Even if it is 50%, I won’t be surprised. Unemployment and Underemployment are the bane of India. So – how do you  respond to that? How does Indian Government, Indian politicians and you and I, the members of the Indian public respond to it? Philosophically. It is Karma.

It isn’t Karma of the past births. It is our present Karma. When you and I buy a Chinese product, in preference to an available Indian product, you and I are supporting employment in China and unemployment in India.

How can we talk like that in these days of Globalization? There is no Globalization in regard to China. You won’t find much of Indian products on Chinese Roads, but there is a huge quantum of Chinese products on Indian Roads and shops. And, many of us buy them in preference to Indian products. Not only Chinese products. We prefer any foreign products to any Indian products.

And, consequently, there is huge unemployment in India. Many Indian-made products are disappearing from Indian markets – and nobody is making even a survey of this phenomenon. This is not Globalization. Globalization must work both ways. It is not so now.  Despite a 9% unemployment in US, US companies are providing huge employment to Indians. Indians are reciprocating to US also in many ways. That’s globalization.

But, in respect of Chinese products, there is no such globalization. It seems to be their way – all the way (or most of the way).  I am not talking of the reasons for this imbalance. I am talking of the Net Effect on India because of this imbalance.

How do we respond to unemployment problem? We don’t respond at all. But, we respond to a political problem  - of COMPARATIVE UNEMPLOYMENT. It is some times called the ancient Indian crab mindset. Or, the divide and rule problem, inherited from British rule.

The Indian crab is supposed to pull down any other Indian crab climbing out of the container. It won’t allow others any thing better than itself. This explanation is for those who do not know the Indian crab. I haven’t seen the crab doing it. But, I am seeing people doing it daily.

Divide and rule is of course world famous. Today, no one represents India as a whole.  Some one represents this caste, some one represents that caste, some body else represents this group, some body else represents that group, some body else represents this religion, or that and so on. 

The last time I heard some one saying “I am Indian First” and paying for it – was Tendulkar, a cricketer. Recently, Mr.Narendra Modi said that slightly differently – Guajarati first, but Indian Next – or, some thing like that. He also said, I don’t plan for Minority. And, I don’t plan for Majority. I plan for 6 crore people of Gujarat. I thought I should be glad to hear that – so long after hearing Tendulkar. But, some people are protesting. They represent not all Gujaratis. But, some groups. They stand for the divide and rule philosophy.

So how do we divide and rule? Especially, in regard to employment.

If there are 100 jobs and 300 unemployed people, we make reservations on who should get these 100 jobs out of the 300 people. 20 % for this group, 25 % for that group, 30% for another and balance – for others. There is a huge political capital to be made out of these reservations. Never mind that – 200 Indians out of 300 will remain jobless – anyway. India, Indian systems and Indian psyche are built around these systems and schemes. Governments are not bothered about creating jobs. But, If a job somehow comes up - like a bolt from the blue – who should be given it? This is our problem.

So, how serious is the unemployment and underemployment problem in India. Count the number of beggars outside our temples, mosques, churches and Gurdwaras etc. They will protest – No, we are employed and this is our employment. We are earning – more than what the planning commission says is BPL.

Every idle man in India claims to be employed in some way – and earning his living. The Naxalite is employed as naxalite. The ULFA members are employed as ULFA members. Many, many people are employed in many such ways. Some times – you will find, some goons are making collections from every shop in the market. They are employed that way.

This is the problem. For some unearthly reason – we say, that our MPs and MLAs and other leaders should not be employed in any profession. I am, unsure what the rule actually is. But, it is some thing like this. It is of course their privilege and I am nobody to question it.

But, it seems, most of the unemployed people are turning towards politics – to make it their profession.

We certainly must find all the reasons for - who are all unemployed and why? In India, there is some hidden attraction for remaining unemployed. This attraction must disappear first.

I mentioned Chinese products by way of example. There are many other products of many other countries - in the Indian markets which have replaced Indian products.

Look at your TV – is it Indian? Look at all the other products in your homes. Your car? Your refrigerator? Your stove? Your air conditioner? The tube lights in your house?  See, how many of them are Indian. You will find, 50% of the products you use today are not Indian.

And yet, not long ago – there were so many Indian TV companies. Where are they today? Almost all are closed. And why? Because, you and I don’t buy. That’s why.

If your son and daughter are unemployed, it is because I don’t buy Indian made products. If my son and daughter are unemployed – it is because you don’t buy  Indian products.

Now – a little justification for why you and I don’t buy Indian products. Always, as you know, there is the other side of the coin.

Our psyche is peculiarly anti – our self.

There is an ancient Indian story of the days of King Krishna Deva Raya of Vijaya Nagar. He and his court poet, Tenali Rama once planned a feast for all the people in the capital town of Vijaya Nagar. This feast was to honour the people for their honesty. The king’s godown has all other ingredients required for the feast except Milk. So, they announced that – next morning, all people in the town – will come and pour one litre of milk into a huge vessel  kept at the 4-road crossing before the king’s palace.

Next morning, all people came and poured 1 litre of milk into the huge vessel. When evening came, the king along with Tenali Rama came and looked inside the vessel. The vessel was FULL – but not with Milk. It was full of water. So much for honesty. This was several centuries ago, when our honesty levels were perhaps much higher. Adulteration is a wide stretching phenomenon in India. So, we distrust Indian Products. Not all. But, many.

If today, we are fighting against corruption, let us not fool ourselves saying it is in high places only. The Buck stops at our own door step. The traffic constable is doing it in broad day light – and nobody is questioning him. The RTO office, the panchayat office – and you name it – everywhere you find it. I am not saying, we cannot be reformed.  We can reform. We haven’t done that – yet.  That is all.

With this mindset, we adulterate rice, wheat, pulses, cereals, mangoes, apples, milk, drugs, water and what not. There is in fact a saying that – you should not sell without adulterating. So shortsighted and foolish is our psyche. Many of us must change our mindsets drastically.

In unemployment also, it is the same problem. I am buying foreign products, not because I am against you. It is just because I am so short sighted. So are you. Your son and my son are both unemployed because you and I are both short sighted.

So, what should we do? Isn’t it very simple? Be Indian. Buy Indian. Not Bye Indian! Even two Decade ago – some body in the Government used to promote that concept. Now, it is not considered fashionable to talk of it. Now, Government is full of Stephanians. Oxfordians. Harvardians and so on. Apart from a few Hansraj collegians etc.

But, Jawahar Lal Nehru was also an Oxfordian. He always wanted to - Be Indian and Buy Indian. So, I am hoping that our Government will listen – as, despite all criticism, I feel, MMS is still one our outstanding PMs.

So – what can Governments at Centre and states do?

Train all unemployed / underemployed Indians in making all Indian products, household products, ornamental products, electrical products, electronic products, plastic utensils etc – with high innovation and excellent quality.

Don’t advertise and train only volunteers. Pull up every unemployed person – and train compulsorily. They will like it later. Train all men and women and children. Do not settle for mediocrity. Demand excellence. Demand innovation. Some of them will pick up this first. Others will catch up later. India needed this yesterday. Today is not too late.

Give all possible assistance to the people trained -  to make Great, Innovative products. Then, subsidize what products they make – so that they can sell them – much below the price of Chinese products. With one rupee subsidy – the government can generate Rs.5 worth of jobs. Isn’t it worth it? 

It is better than NREGS – where you can’t show any assets, or skills or any sort of productivity – for the huge money distributed every year. NREGS funds can be diverted to this purpose easily – without changing the name of the scheme. You pay the people the same money – to learn new skills, make new products and sell them at a discount to Chinese products.

Pay for Innovation. Pay for learning skills. Pay for Productivity. Pay for creation of Jobs. That’s what president Obama trying to do in USA. His every alternate talk is about Job creation.

I wish to see Prime Minister Manmohan Singh doing an Obama in India. He can succeed better than  Obama. US Congress is not (yet) fully in tune with Obama. But, Indian congress is in tune with MMS.

We can do it. India can do it. By 2014 – you can ensure several crores of Indians to be more skilled, more employed and more industrious and hardworking than many others in the world. Isn’t it worth it?

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Sunday, September 18, 2011




Why did Narendra Modi think of a Sadbhavana Mission?

One can always say – Narendra Modi should have done this or that – instead of Sadbhavana Mission, the three day, Self purification fast, for unity and Harmony among the people of Gujarat essentially – and also, perhaps India in general.

But, Modi has not chosen to do any of the things – which many others, chiefly his detractors, suggest. His mind and heart have chosen the Sadbhavana Mission.

If Modi did not choose the Sadbhavana Mission – but had gone through the usual political maneuvers of all Indian Politicians – would it have been better?

After all – there was no Sadbhavana Mission or any other mission to bring together all people or any other idea that others are suggesting now – in any other state - after even worse Riots took place in those states. The current detractors of Modi are silent on all of them now, for their own reasons.

So – let us forget all of their other ideas.

Is it better that there is a Sadbhavana Mission in Gujarat now; or is it better if there is no Sadbhavana Mission at all there?

It is now, not a question whether some thing else should or should not have been there in Gujarat. It is a question whether Sadbhavana Mission being there is better for Gujarat - rather than it not being there.

I think – all said – Sadbhavana Mission being there is better for Gujarat.

The next question is – is it a Political move for Modi to become PM? 2014 is far, far away. Lots of things will happen before that. In India, every week – some thing new is happening.

Anna Hazare - is a new phenomenon. His crusade against corruption is extraordinary – but somewhat obstinate in respect of some points. Yet, his crusade is invaluable for India. He was very well supported by the Media, and also by Opposition, especially the BJP, in and out of Parliament – and a large part of Anna’s success is creditable to these two forces. India wants this movement against corruption to succeed – but also to take all right thinking people together in the fight.  What Anna and his team will plan next is anybody’s guess.

Baba Ram Devji, in my opinion, has been wronged by Government and cold shouldered by team Anna also to some extent - for no good reasons. There is a witch hunt going against him from Government side. Hopefully, he will come out of all of them in the course of time.

In my opinion, his contribution to the eradication of diseases and propagation of Yoga for health has been invaluable for those who had attended his Yoga Sibirs. His Yoga and his medicines are both very good. India needs his services on a long term basis. I wish Government takes his help in eradicating many of today’s incurable diseases. so - Baba Ram Dev – is not one to be written off.

In all Parties – there are some idealistic forces. There are also many idealistic persons outside the Political arena, doing a lot of good work. They can see beyond current day Politics. We never know, when a great motivation will strike them – and they come out on streets to influence Indian Politics. So – lots of things can happen between now and 2014.

Modi, still has miles to cross, in legal tangles in the state and other challenges. So, this Sadbhavana Mission being a stepping stone of sorts to becmong PM – is  a some what far-fetched imagination, based on the CRS report.

The third question is – about his detractors who are coming together.  Frankly, I am not impressed by their claims. There were 2 incidents – one is Godhra train carnage and the second is subsequent riots. The detractors group almost do not seem to remember the first incident at all. Their support is in respect of the second incident of riots. This partial blindness or selective amnesia – doesn’t show them in any good light at all.

Modi has told the press – take five communal incidents which happened – 4 in other congress ruled states and one in Gujarat – compare the action taken by all the 5 governments – and then tell me – whether Gujarat acted faster and better or worse. Fair enough. The Press must do it. His detractors must also be doing it. Definitely – then, criticism will be more balanced.

It does not mean – Modi should not be acting faster than he did. He should. Every Government should.

His detractors also complained about the spending on the Fast. Modi has effectively replied the point (to my mind), that constructing a huge pandal of that size costs crores. But, Ahmadabad readily has an auditorium, and it comes in less than 1/5th of the cost. So, why not? And, if it comes with an A/C already installed there – why not? It is not only cheaper – but much better – and makes good business sense. Modi’s logic looks reasonable.

His detractors had assembled the riot victims who sought to protest seeking Justice for them. Modi’s Government of course did not allow them near the Fast Venue right now – but I think, Modi will reach out to them in some way later, when the detractors disperse. In any case- if cases are there in courts – the reaching out by Modi will only be symbolic. The Law, in every case in India, takes its own course. Modi probably can’t help that too much.

Another interesting point that some people talk of is – Modi is not Gandhi. Neither is he Anna. This question seems so out of place to me. Yes. Modi is not Gandhi or Anna. Why should he be?  His mission is not the same as that of Gandhi or Anna. Gandhi succeeded in bringing Freedom. Anna is yet to succeed in any thing fully. We want him to succeed in his mission.

Modi has succeeded in development of Gujarat. Now – he has trained his focus on other aspects like Sadbhavana – chiefly, because, many people are carrying on unnecessary propaganda dividing people on communal and caste lines. His mission is to bring unity and harmony. He feels that- faster development of all sections is possible by unity and harmony only.

Having heard Modi’s speeches, and press Interviews so far – the feeling is undeniable that – considering all pros and cons – this Sadbhavana Mission is GOOD FOR GUJARAT. And, it may be good for India too.

Evidently, it is one step towards peace and Harmony and more will follow. Many from his party have said this to be so. So, let us wait further, what Modi will do for carrying the Sadbhavana Mission further. He has said that - Gujarat Government is committed to provide justice to victims

Modi has lived up to his Sadbhavana Mission in the first 2 days – he hasn’t said a word against anybody – including his worst detractors. His every word is in keeping with the spirit of Sadbhavana.

This is some thing that all his BJP colleagues and workers need to emulate. No Bad words. No abusive words. No hate campaigns. Constructive criticism is OK – but not abusive words.

Is that prescription only for BJP workers and leaders? No. It is required for all Political workers and leaders.  Let us keep the Political atmosphere in India clean. Many good things will flow out of it.

Modi or No Modi – India needs Sadbhavana in every state. That much is beyond a shadow of doubt. 

If Modi brings it in Gujarat, let us thank him and congratulate him.

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Friday, September 16, 2011



Mid-Quarter Monetary Policy Review  Dated 16th, September 2011


RBI has announced its Mid-quarter Monetary Policy review today, along with its monetary measures to control Inflation. According to its Press release, RBI has decided to :

increase the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points from 8.0 % to 8.25 % with immediate effect.

Consequent to the above increase in the repo rate, the reverse repo rate under the LAF will stand automatically adjusted to 7.25 % and the marginal standing facility (MSF) rate to 9.25 % with immediate effect.”

As always, RBI monetary Policy measures are supported by its review of national and international macro economic situation, reasons there for, factors underlying it and allied matters. This is summarized below :


Since RBI’s 1st Quarter Review of July 26, global macroeconomic outlook has worsened. Sluggishness will persist longer than earlier expected. Concerns over  sovereign debt problem in euro area have added further uncertainty to the prospects of recovery.

Domestically, even as many indicators point to moderating growth, both headline and non-food manufactured products inflation are at uncomfortably high levels. Crude oil prices remain high. Food price inflation persists notwithstanding a normal monsoon.

Inflationary pressures are expected to ease towards the later part of 2011-12. Stabilization of energy prices and moderating domestic demand should facilitate this process.  However, in current scenario, with the likelihood of inflation remaining high for next few months, rising inflationary expectations remain a key risk. This makes it imperative to persevere with the current anti-inflationary stance.
Global Economy

Global economy slowed in Q2 (April-June) of 2011.  Lead indicators such as purchasing managers’ indices (PMIs) suggest a further moderation in economic activity in Q3, with global manufacturing PMI approaching neutral level of 50. In recent weeks, global financial markets have been rattled by perceptions of  inadequate solutions to the euro area sovereign debt problem, exposure of banks to euro area sovereign debt and renewed fears of recession. Global recovery will also be affected by fiscal consolidation measures in some of the advanced economies.

In the US, apart from fiscal concerns, stubbornly high unemployment and weak housing markets continued to weigh on consumer confidence and private consumption. In response to the weakening of economic activity, the US Federal Open Market Committee, in its 9th August meeting, indicated that it would keep the federal funds rate near zero at least through mid-2013.

Economic activity in the euro area decelerated significantly during Q2 of 2011 reflecting decline in both private and government consumption expenditures as well as deceleration in capital formation. Economic activity contracted in Japan reflecting the impact of the earthquake/tsunami.

In contrast to advanced economies, growth remained relatively resilient in emerging and developing economies, notwithstanding some moderation in response to monetary tightening to contain inflation.

Domestic Economy

GDP growth decelerated to 7.7 % in Q1 of 2011-12 from 7.8 % in the previous quarter and 8.8 % in the corresponding quarter a year ago. Agricultural growth has accelerated, but industry and services have decelerated. The index of industrial production (IIP) slowed from 8.8 % year-on-year in June  to 3.3 % in July. However, excluding capital goods, the growth of IIP was higher at 6.7 % in July  as  compared with 4.4 % in June. Cumulatively, the IIP increased by 5.8 % during April-July 2011, compared with an increase of 9.7 % in the corresponding period of the previous year.

The HSBC Purchasing Managers' Index for the manufacturing sector also suggested moderation.  Corporate margins in Q1 of 2011-12 moderated across several sectors compared to their levels in Q4 of 2010-11. However, barring a few sectors, significant pass-through of rising input costs is still visible.

Monsoon rains so far have been normal. The first advance estimates for the 2011-12 kharif season point to a record production of rice, oilseeds and cotton, while the output of pulses may decline.


Headline year-on-year wholesale price index (WPI) inflation rose from 9.2 % in July to 9.8 % in August 2011.  Inflation in respect of primary articles and fuel groups edged up in August. Year-on-year non-food manufactured products inflation rose from  7.5 % in July  to 7.7 % in August 2011 suggesting as yet persistent demand pressures. The oil marketing companies raised the price of petrol by ` 3.14 per litre with effect from September 16, 2011. This will have a direct impact of  7 basis points to WPI inflation, in addition to indirect impact with a lag. The new combined (rural and urban) consumer price index (base: 2010=100) rose to 110.4 in July from 108.8 in June. Other consumer price indices registered inflation rates in the range of 8.4 to 9.0 % in July.

Monetary, Credit and Liquidity Conditions

Year-on-year money supply (M3) growth at 16.7 % in August was higher than the projection of 15.5 % for the year reflecting higher growth in term deposits and moderation in currency growth.  Similarly, year-on-year non-food credit growth at 20.1 % in August 2011 was above the indicative projection of 18 % set out in the July Review.

Liquidity has remained in deficit, consistent with the stance of monetary policy. The daily average borrowings under the liquidity adjustment facility (LAF) were around ` 40,000 crore in September (up to September 15, 2011). Money and the government securities markets have remained orderly. In recent weeks, as a result of global risk aversion, the rupee has depreciated, which may have adverse implications for inflation.

Monetary transmission strengthened further with 45 scheduled commercial banks raising their Base Rates by 25-100 basis points after the July Review. Consequently, the modal base rate of banks rose to 10.75 % in August from 10.25 % in July.
Fiscal Conditions

The central government’s fiscal imbalances widened during April-July of 2011 reflecting, primarily, the impact of decline in revenue receipts coupled with pressures from non-plan revenue expenditures on account of higher petroleum and fertiliser subsidies. Fiscal deficit at 55.4 % of the budget estimates in the first four months of the current fiscal was significantly higher than that of 42.5 % during the corresponding period last year (when adjusted for the more than budgeted spectrum proceeds).

Summing Up

To sum up, developments in the global economy over the past few weeks are a matter of serious concern. Growth momentum is weakening in the advanced economies amidst heightened concerns that recovery may take longer than expected earlier. Although India's exports have performed extremely well in the recent period, this trend is unlikely to be sustained in the face of weakening global demand. This, combined with the slowing down of domestic demand, to which the monetary policy stance is also contributing, suggests that risks to the growth projection for 2011-12 made in the July Review are on the downside.

Meanwhile, inflation remains high, generalized and much above the comfort zone of the Reserve Bank. After slight moderation in July, non-food manufactured products inflation rose again in August, suggesting continuing demand pressures.  Global crude oil prices have remained elevated despite weakening of global recovery. Moreover, there is still an element of suppressed inflation. Though global oil prices have moderated, the pass-through to domestic prices remains incomplete. Also, current administered electricity prices are yet to reflect increase in input prices, even as many states have initiated increases. Food inflation is at near-double digit levels, despite normal monsoons, underlining the fact that it is being driven by structural demand-supply imbalances and cannot be dismissed as a temporary phenomenon. The inflation momentum, reflected in the de-seasonalised sequential monthly data, persists.

Expected Outcome

The policy action in this Review is expected to:

reinforce the impact of past policy actions to contain inflation and anchor inflationary expectations.


The monetary tightening effected so far by the Reserve Bank has helped in containing inflation and anchoring inflationary expectations, though both remain at levels beyond the Reserve Bank’s comfort zone.  As monetary policy operates with a lag, the cumulative impact of policy actions should now be increasingly felt in further moderation in demand and reversal of the inflation trajectory towards the later part of 2011-12.  As such, a premature change in the policy stance could harden inflationary expectations, thereby diluting the impact of past policy actions. It is, therefore, imperative to persist with the current anti-inflationary stance. Going forward, the stance will be influenced by signs of downward movement in the inflation trajectory, to which the moderation in demand is expected to contribute, and the implications of global developments.


While all the above analysis is broadly correct, the final remedy does not appear to be correct.

If there has been normal monsoon now and earlier, why does food Inflation persist? This is mainly due to mismatch between supply and the demand for food products. – and not due to excess liquidity in the system.

It would be an incorrect method to try to depress demand for food articles by artificially reducing the money supply going into their purchase. In India, there is a huge undernourished population even now – and food supply must reach them in adequate quantities. NREGA and other such schemes are intended for it. So, these schemes are bound to create money supply precisely for Food articles. It is Government’s duty to augment supply of food articles also to these sections of society – so that no Inflation results in food articles’ prices.

There must be central and State Government action – to ensure that there is no hoarding in food articles and that there are adequate transportational and other logistical arrangements for food supplies to reach the locations where we find pricing pressures. Also, Governments must take effective steps to increase the acreage under agriculture very quickly and see that products in shortage are cultivated more.

India has floods in many places but where water is needed for agriculture, there, we find shortage of water. Governments must take steps to ensure that the flood waters are diverted to draught prone places – so that floods are averted and adequate water supply  in draught prone places is  ensured. In India, most water storage facilities, we find, were created hundreds of years ago, by our ancient Kings. Today, due to faulty planning, many of these have disappeared.

The central and State food and agriculture Ministers / secretaries must meet at least once in a quarter and draw up plans for a national water Grid, which ensures adequate, clean water to all places in India. They must also ensure the creation of adequate storage and distribution facilities. Hoarding and creation of artificial scarcities occurs in certain articles. This must be prevented by the Government.

Thus, there are short term and long term measures that each Government must take – to increase food supplies and arrest food inflation.

In regard to manufactured articles, India must promote greater demand and greater supply both – at this point of time. Manufacturers and entrepreneurs in India need further encouragement to enhance supplies. While supply chain can be created by them – demand must not be stifled by RBI or Government – by Rate Hikes etc. The last 2 years have seen Rate Hikes that were not seen in last several years. But, this did not arrest Inflation. On the other hand, now, it is adversely affecting Growth in several sectors – like housing and Auto sectors.

USA is deeply concerned on how to increase demand in these sectors – where as India is stifling even the natural growth of demand in these sectors.

Government’s policies are also not helping the growth or control of Inflation. For instance, huge taxation is one of the main causes of the sluggishness in the Airlines sector. Both Public and Private carriers are slipping into the Red despite higher fares. If Air line carriers slip into red – Governments taxes also will be affected adversely. On the other hand, reducing the taxes on airline fuel etc – and helping them balance their Balance sheets – will help them and also the Government eventually.

Increasing Petrol, diesel and LPG prices is directly and indirectly inflationary. Government must absorb these additional costs. Its taxation policies will generate enough resources – if Inflation is not spiraling out of bounds and incomes are increasing.

I do not know if the repo and reverse repo rates in India have already touched current world highs – or we are headed in that direction. But, it is definitely time to reverse them. Rate Hike, in my view, is the wrong medicine by the wrong Doctor at the wrong time. But, to be fair to RBI, if it must act to control Inflation, this is the only medicine in its Kit. Hence, this is not intended to be a criticism of RBI Policies.

But, it is the Government which must take serious measures on supply side especially – and ensure adequate supplies to meet the demand. Prices will come down. Inflation will come down.

India is not at a stage where it can afford to stall Growth. It must  PLAN FOR ABUNDANCE – and not for scarcities. It must not stifle demand – especially for food products and other essential products. If necessary, it must control the prices by other means available to Government.

It looks as though – Mr. Kaushik Basu and Mr. Pranab Mukherjee are both thinking of such “out-of-the-box” measures only presently.

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