The only tangible step in 15 months, since it reawakened from its own policy paralysis in mid-2012 is the Cabinet Committee on Investments but the fruits of its labours on project clearances thus far would be unavailable to boost growth in the short-term. With its own survival at stake, the Congress-led UPA Government can hardly be expected to do anything meaningful for sustained growth both on fiscal discipline involving subsidy reductions and on the structural side to attract investments or in completing pending legislation.

Thus, in a continuing milieu of stunted growth at around 5 per cent and unabated CPI inflation close to double digit, with CPI food inflation well above it, RBI has little room for calibrating monetary stance in a balanced way in the current growth-inflation dynamics. Dr Rajan remains committed to bringing down CPI (2010-100), which was at 9.9 per cent in December, but his own approach, in the third quarter policy review on January 28, could be to leave policy lending rate unchanged (7.75 per cent), as he did in mid-December.

Despite a sharp rise in WPI to 7.5 per cent in November, Dr Rajan left rates unchanged in the last mid-quarter review (Dec.18) taking a risk on a sharp fall in vegetable prices which conformed to his expectations. His first two hikes of 25 basis points each on September 20 and October 29 had taken the repo rate from 7.25 to 7.75 per cent by the end of October. The December WPI at 6.2 per cent with a drop in primary articles group, mainly vegetable prices fall, may not warrant a re-look at the repo rate for the present though all the envisaged disinflationary effects are not on the horizon.

The Urjit Patel Panel report suggesting a nominal inflation (CPI) target of 4 per cent with a band of plus or minus 2 per cent, is viewed as “hawkish” by business and markets while being cold-shouldered on the Government side. On the other hand, Dr Arvind Mayaram, Economic Affairs Secretary, sees the WPI slowdown in December as giving Mr. Rajan some room to cut rates on January 28, no matter the food inflation at 13.68 per cent. This is North Block approach to growth sans price stability.

RBI Governor felt a rate hike last time would have hit demand but that does not mean that the demand-supply balance, a pre-condition for monetary easing, is anywhere in sight. Finance Minister M Chidambaram and other Government leaders have tried to project a picture of Indian economy stabilizing with fiscal consolidation and narrowing of current account deficits and the considerable opening up for foreign investments.

At least one of them, Dr Montek Singh Ahluwalia, was more candid in Government not having foreseen “obstacles” and taken “quick decisions” and said in Davos that major progress on infrastructure de-bottlenecking was not expected until after the elections in May. IMF Chief Ms. Christine Lagarde, also there, advised India to improve business climate by giving priority to “addressing the bottlenecks of Indian economy” while pursuing fiscal consolidation.

Meanwhile, RBI Governor Dr Rajan has revised the schedule of presenting the quarterly review of macro-economic developments a day ahead of his policy statement and thus, what RBI has to say on the state of economy and inflation, in particular, would be known only along with the monetary policy review for the third quarter on January 28. This has one advantage for Dr Rajan- to eschew media anticipations of his likely stance on rates and avoid criticisms that his policy stance was at variance with the logic of the macro-economic review.

The immediate policy stance apart, Dr Rajan may throw some light on the reports on monetary policy of the panel headed by Deputy Governor Dr Urjit Patel which in effect would give the central bank greater autonomy - though its CPI inflation target may be an area of debate as to its feasibility within a specified date - as well as the Nachiket Mor Committee’s more ambitious plan of financial inclusion for every citizen by January 1, 2016.

Dealing with the stresses in the banking system as a result of deterioration in asset quality from exposures to some segments of corporate and restructuring of loans is another major area of the Governor’s focus. RBI is also taking some time on grant of new licences for private sector banking, promised early in the New Year.

In Davos, IMF Managing Director, taking note of monetary policy being re-framed under the new authority of the central bank of India, said targeting inflation was “desirable” and it has worked “quite well” in many countries.

However, the Finance Ministry spokesman has dismissed as “premature” bringing in CPI, with its “imperfections” yet to undergo “sophistication”, as the focus of monetary policy. That food inflation cannot be brought down only through monetary policy is widely accepted but for a government which has hardly changed the structural scene behind it for five years, for prices to come down, seeking excuses seems the only option.

Politically, It is going to be difficult to get through any of the intended reforms including gradual raising of diesel prices or to co-ordinate with states to make some impact on food prices or even open the gates even wider for foreign capital flows, which have shown no great confidence on political stability for months to come. On the other hand, the tough-talking Petroleum Minister Mr Moily, who has pushed up gas prices and is itching to do more, is getting ready to increase the number of LPG cylinders at subsidized prices to 12 per household, as desired by the party vice-president Mr Rahul Gandhi. The pre-Lok Sabha election political milieu is making RBI Governor’s task really difficult. (IPA Service)