oppn parties Fiscal Deficit, Monetary Policy & Inflation

News Snippets

  • Mobile operators Vodafone-Idea and Airtel decide to raise tariffs from next month
  • Sharad Pawar meets Sonia Gandhi and says more time needed for government formation in Maharashtra
  • Justice S A Bobde sworn in as the 47th Chief Justice of India
  • Supreme Court holds hotels liable for theft of vehicle from their parking area if parked by valet, says "owner's risk" clause is not a shield from such liability
  • Finance Minister says she is receiving feedback from many sectors that recovery is happening as there is lower stress
  • Sabarimala temple opens, but police bar the entry of women below 50 years
  • Finance Minister Nirmala Sitharaman says Air India and BPCL to be sold off by March
  • Media person Rajat Sharma resigns as DDCA president
  • Shiv Sena, NCP and Congress postpone meeting the governor of Maharashtra
  • Shiv Sena not to attend the NDA meeting on 17th November, says break up "a formality"
  • Shiv Sena says that the confidence the BJP is showing about forming the government in Maharashtra is based purely on its expectation of getting numbers through horse trading
  • Anil Ambani resigns as director of the bankrupt Reliance Communications
  • India beat Bangladesh by an innings and 150 rums inside three days in the first Test. Indian pacers excel after Mayank Agarwal's double century
  • Sena-NCP-Congress work out a common minimum programme, will form the government soon and it will last 5 years, says Sharad Pawar
  • Income Tax Appellate Tribunal upholds the decision to withdraw the charitable status of Young India, making it liable to pay Rs 145 in income tax. Rahul Gandhi and Priyanka Vadra are the majority shareholders in the company
Two Muslim litigants in Ayodhya refuse to accept the Supreme Court order, say review petition might be filed
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Fiscal Deficit, Monetary Policy & Inflation

By Sunil Garodia

About the Author

Sunil Garodia Editor-in-Chief of indiacommentary.com. Current Affairs analyst and political commentator. Writes for a number of publications.
In its latest policy review, the RBI expectedly maintained status quo and left key lending rates unchanged. It was expected because of two main reasons: retail inflation shot to a nine-month high in June and although the RBI has cut repo rates ( rates at which it provides short term funds to banks) by 75 basis points since January this year, the banks have passed on only 30 basis points to the end consumer. The RBI was clear in saying that further rate reduction depends on how inflation pans out and how commercial banks pass on rate reduction to consumers.

But as a belligerent government wishes to bring down interest rates despite inflationary pressure, there is little the RBI would be able to do in future if the latest revised financial code put up by the finance ministry is anything to go by. The code seeks to take away the veto power the RBI governor has in matters of setting lending rates. Even before this policy review, there were indications from the ministry that the time was ripe for another rate cut.

Although the RBI governor Raghuram Rajan has been quoted as saying that he isn’t opposed to the idea of taking away of the veto power, this clearly goes against the recommendation of the Financial Sector Legislative Reforms Commission (FSLRC), which had advised for the same “in exceptional circumstances.” It is also incongruous to have a body that is saddled with containing inflation but whose chief does not have a say in the amount of money that is to float in the economy.

Rajan pointed out that a committee formed to take monetary policy decisions would bring in different view-points, will reduce the pressure on one individual and would ensure continuity (as it would be reconstituted even if one member exits). But one is certain that the RBI has internal committees to take these decisions. The point is that if the RBI governor feels that inflation would be jacked up if rates are reduced or more money is injected in the economy at a particular point of time, he should have the right to refuse taking such a decision. If not, he should not be responsible for containing inflation.