oppn parties Fiscal Deficit, Monetary Policy & Inflation

News Snippets

  • Imran Khan raises nuclear war bogey again, says if Pakistan loses a conventional war, it might fight till the end with its nuclear arsenal
  • Searching for Rajeev Kumar, ex-CP, Kolkata Police, the CBI approaches state DGP to know about his whereabouts
  • Ferry overturns in the river Godavari in Andhra. 46 feared dead
  • Supreme Court to hear pleas on Jammu & Kashmir today
  • Ghulam Nabi Azad moves Supreme Court for ordering the government to allow him to visit his family in J&K
  • GST Council meeting to focus on leakages and evasions, expected to tighten processes, especially regarding input tax credit
  • Finance minister, citing figures for July 2019, says that industrial production and fixed investment is showing signs of revival
  • Amit Shah's comment on Hindi as the unifying language draws the ire of MK Stalin and Siddaramaiah. Stalin says the country is India not Hindia
  • On Hindi Diwas today, Amit Shah says use of mother language must be increased but Hindi should be adopted as the common language of the country
  • Pakistan raises white flag on LoC to claim bodies of dead soldiers
  • India beat Bangladesh by 5 runs to lift the U-19 Asia Cup
  • A three-judge bench of the Supreme Court will examine the amendments to the SC/ST act made after an apex court order that 'diluted' the provisions and which were reinstatd by the amendment
  • Delhi government decides to re-implement the odd-even system of traffic management from November 4 to 15
  • UP to discontinue law that allows the state government to pay the income tax dues of ministers
  • Anand Sharma of the Congress to replace P Chidambaram on the parliamentary committee on home affairs
Sunni Wakf Board and Nirvani Akhara write to the Supreme Court for a negotiated settlement to the Ayodhya dispute
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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.