It is simply untrue that the RBI is unaware of these factors. High interest rates did not impact the economic growth. Stalled projects worth over Rs. 10 lakh crores impacted growth and employment. RBI has deliberately kept the bank rate high for the government to act against the parallel economy and to take fiscal measures to import essential consumer goods at cheaper rates to cool down their domestic price levels for the benefit of the poor and, at the same time, ban their exports. Potato farmers in West Bengal are demanding up to Rs. 10 per kilo for their products when the retail market price of the product has shot up to Rs. 20 to 22 per kilo in cities like Delhi, Mumbai and Bangalore. The farmers have become victims of uncontrolled traders across the country. Marginal farmers are reportedly taking easy options – committing suicides in hordes in Bengal, UP, Maharashtra and other states under debt burden. This is happening to producers of almost every agricultural commodity in the country. The governments – central and state – are not taking appropriate action to save such farmers, control the retail prices and help the common man. Instead, it wants RBI to reduce the cost of entrepreneurial and industrial borrowing to manufacture products at international prices.
Theoretically, the RBI can’t oblige ignoring the high inflation rates although it knows very well that inflation in present India is no longer responsive to the central bank’s monetary policy. For India’s millions of black money holders, the market price of the poor man’s consumption items matters little. They have too much money – both white and black — to be unnecessarily concerned about the retail prices of ordinary consumption goods and their impact on wholesale (WPI) and consumer price index (CPI). They officially spend $50-60 billion (Rs. 3,72,000 crore) to import gold every year. They also spend almost a similar amount, if not more, in importing other luxuries.
Has the government or RBI ever tried to know why there is so high demand in India for expensive gold, IKEA furniture, Italian kitchens, marble stones, Costa Coffee, premium Scotch whiskey, French wine and perfume, Switch watches, Italian inner wears, Swiss shoes, expensive smart phones, etc? The last published computed average per capita income of an Indian was below Rs. 5,729 per month, two years ago. Well, the truth is this income average included the official monthly remuneration of well over Rs. 2,00,00,000 drawn by corporate head honchos like Dayanidhi Maran or tax-free dividend incomes worth billions of industry barons such as Mukesh Ambani of Reliance Industries.
India's per capita income, a gauge to measure living standard, was estimated to have gone up 11.7 per cent to Rs 5,729 per month in 2012-13 at current prices, compared with Rs 5,130 in the previous fiscal. The estimated growth rate of per capita income for that fiscal, however, was lower than the previous fiscal when it grew by 13.7 per cent. Obviously, the poor and the low income group, who comprise nearly 50 per cent of India’s population, earn much less than the average per capita income. Even a graduate shop attendant in city malls or receptionists in small establishments earn less than Rs. 5,000 per month.
For India’s millions of black money holders, the market price of the poor man’s consumption items matter little. They have too much money – both white and black — to be unnecessarily concerned about the retail prices of ordinary consumption goods and their impact on wholesale (WPI) and consumer price index (CPI). They are the vocal section of the society. They can’t be ignored by the Reserve Bank governor or the elected finance minister.
However, since the finance minister is directly answerable to the vocal section, he would prefer the RBI chief to act first and loosen the tight credit control regime which has failed, anyway. Ironically, the central bank knows that the current inflationary trend in India is the product of easy fiscal policy and expansion of black money. It has been indirectly suggesting that the government should act first. The finance minister’s public statement that the government has no rift with the RBI over the control of money markets seems to only recognize the issue without offering an easy and acceptable solution to either inflation or the expansion of black money and big spending by a big section. (IPA Service)
India
RETAIL INFLATION IS BEYOND RBI CONTROL
PRICE RISE CAN BE CHECKED FISCALLY, IF AT ALL
NANTOO BANERJEE - 2015-03-26 03:31
If the continuing high credit and deposit rates running for a period of almost five years at a stretch have little impact on India’s high inflation rates, the current inflationary trend is obviously outside the domain of the Reserve Bank’s monetary policy. RBI has done what it could do under the circumstances. The tight money policy has failed to curb inflation. High credit rates are not compressing the money supply with the system. Similarly, high deposit rates are not driving surplus money with the public into bank or institutional deposits. If the known inflation control system by the country’s central bank has failed for such a long period, there are several reasons, of which two seems to be most compelling. First one refers to massive black money circulation benefiting a big section of the population that does not respond to RBI’s money control measures. The other one is that a good number of profit making Indian companies are not seriously impacted by RBI credit rates for two reasons: these fund-flush firms don’t need to borrow much from the domestic banks at such high rates and others indulge in cheaper commercial borrowings thinking that domestic rates will not surge beyond a point impacting their repayment costs in rupee terms.