Monday, September 16, 2013



RBI & Government

After Raghuram Rajan took over as RBI Gov, India Inc’s hopes were raised (by India Inc itself) that  he will be a panacea for many ills like Inflation , High Interest Rates and so on. 

But, wholesale Price Index has now climbed to 6.1% in August against 5.79% in previous month. So, if Raghuram reduces interest rates, he will be condemned and laughed at by India Inc itself. The Economic Times Editorial of today says, that keeping high food stocks is treason; Cut food stocks – it advises. This Blog has been saying the same thing for almost 2 years now. 

This Inflation is basically food Inflation – and food Inflation will not respond to High Interest Rates. There is no connection what so ever between the two. Whether Inflation rises or falls, it has nothing to do with the RBI’s monetary Policy, especially in the Indian context.

But yes, it has everything to do with the Ministries of food, agriculture and commerce. If onion prices are rising and yet the Ministries are advocating Exports,  or allowing hoarding of Onions, Inflation in food articles is bound to rise. There seems to be a whole lot of insensitivity to the rise in prices of food articles in the Union and also the state Ministries concerned. 

RBI is helpless, absolutely, utterly, helpless to reduce these soaring prices of food articles through its monetary policy.  But, it is nothing short of treason that the Ministries are doing nothing to control the food article prices. When prices of some articles rise 240%, People are suffering. But, the Ministries and Babus are not seeing that suffering. This  is the tragedy. So, I agree with the Economic Times Editorial in full. Rather, I feel, unknowingly though, Economic Times now agrees with my stand of the last 2 years.

Therefore I advocate 2 things. 

1.  The Ministers and Babus in Food, Agri and Commerce Ministries at Centre and in states must come together and act tough against Hoarders, ensure release of all Inflation prone commodities into the market all over India, even clamp down on prices, and if prices go above a certain level, treat it as act against the country; arbitrarily seize the stocks and sell in the Market at lower prices. Excessive Profiteering in food articles must be prevented at all costs – as this is the primary cause of Human suffering and sorrow. Governments are not there to promote people’s  suffering, at the benefit of hoarders, profiteers, exporters and so on.

2.  RBI must recognize at least now that their Monetary Policy is not the instrument to curb food inflation. Its High Interest Policy had Zero effect on Inflation in last 2 years – because, it is not the medicine for this  Inflation. This inflation remains uncontrolled only because of the inaction of the Ministries concerned. Therefore RBI must bring down the Interest rate structure immediately to promote Growth. Too many sectors are suffering because of the high Interest Rates for last two years or more. Indian Products are becoming uncompetitive in all markets because of this reason. RBI must sternly tell Government that FOOD INFLATION is its baby and advise it to initiate urgent steps to control Inflation -   from their corridors. This Government is angry with CAG, SC, RBI, PAC  and everybody for their criticism of itself – but, it is yet to look at itself. Governments must learn to accept and live with criticism. The lone person who seems to care  – is Mr. Chidambaram. But, food inflation is not in his domain.

3.  There is one more duty for the RBI and the Government. The NPAs of all Banks – especially of Public sector Banks – are rising alarmingly. When will the Government look at what ails all these companies and take steps to redress their problems? If these sectors plunge into their demise because of Government inaction at this point of time, which is already very late, RBI also will have to be blamed for not pointing out to the Government, the enormous problem facing the Economy. The only thing RBI is doing at this point of time – is to ask Banks to play safe in recovery of their loans and in giving further loans. But, that, unfortunately, is not a solution, for the Economy. RBI and Government together are responsible for the Economy – though RBI can do it, in an advisory role and Government can and must actually act.

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