oppn parties Growth Versus Inflation: The Tricky Question Before RBI
OPINIONS : Strongly Expressed

February 04, 2023

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  • The Centre today said that there were no systemic issues linked to financial markets invloved in the crash of Adani group shares and market regulators were capable of doing what was needed. It said there is no need for the government to step in
  • Nearly 96% of the candidates appeared for the JEE(Mains) exam in the January session, making it the all-time high attendance
  • The Union budget has provided that input tax credit will not be available to companies on products and services they procure to fulfill their CSR obligations
  • Bombay HC rules that an FIR can be quashed even if a person is convicted in a trial court if an appeal in the case is pending before a higher court
  • Supreme Court thrwos out PIL seeking one candidate, one seat in elections, says it is the call of the legislature
  • Law minister Kiren Rijiju said that the government remained committed to diversity in selection of judges
  • Mamata Banerjee alleges that due to government pressure on public financial institutions to invest in Adani group, deposits in LIC and banks have become vulnerable
  • Kerala journalist Siddique Kappan was finally released from Lucknow jail, 28 months after his arrest by UP police in a UAPA case and more than 20 days after he was granted bail by Allahabad HC
  • A 65-year-old woman who was alone at home was hit on the head with a hammer and robbed in Kolkata
  • Enforcement Directorate charges that Arvind Kejriwal connived with Delhi liquor scam accused, court takes congnizance of charge sheet
  • Opposition stalls Parliament, demand probe into the Adani controversy. Says government forced LIC, SBI and other public institutions to invest in Adani group companies
  • RBI seeks information from banks about their exposure to the Adani group
  • BSE and NSE initiate additional risk-containment measures to counter the rout in Adani shares
  • Adani group shares free fall continues unabated: led by Adani Enterprises and Adani Total Gas,group companies lose 45.7% marekt capitalization in just 6 trading sessions
  • Stock market insulates itself from fall in Adani group shares. Sensex ends in green after another volatile session while Nifty ends in red but flat: Sensex gains 224 points to 59932 and Nifty loses 5 points to 17610
Free fall in Adani group shares continues unabated, Opposition parties demand a probe by a joint parliamentary committee or a Supreme Court-appointed panel
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Growth Versus Inflation: The Tricky Question Before RBI

By Linus Garg
First publised on 2022-11-29 05:46:35

About the Author

Sunil Garodia Linus tackles things head-on. He takes sides in his analysis and it fits excellently with our editorial policy. No 'maybe's' and 'allegedly' for him, only things in black and white.

As the Monetary Policy Committee of the RBI meets in the first week of December for its bimonthly review of policy rates, the growth versus inflation debate is once again in focus. While inflation seems to be moderating after reaching the peak of 7.8% in April, at 6.77% in October, it is still above the RBI's threshold of 6%. More importantly, core inflation is still high and rising. This means that inflation is not only due to high food and fuel prices but is broad based and as a whole, refusing to go away. Hence, since the apex bank is duty bound to bring it down, it needs to keep raising policy rates to stay ahead of the inflation curve. That this has an adverse effect on growth, already stymied by low demand, is a given. Hence, the MPC has the unenviable task of striking a balance between growth and inflation.

While the economic indicators are positive, yet most analysts have scaled down their earlier estimates of growth of Indian economy from 7% to about 6.5% in FY22. Further, with the global economy facing recession and consequently Indian exports also facing a slowdown, the outlook seems bleak in the short to medium term. WTO has warned that exports are set for further slowdown as its Goods Trade Indicator is at 96.2, lower than the baseline 100, indicating a slowdown. The only bright side is that the US Fed has indicated that its tight money policy and hiking of interest rates will not happen at the speed it was expected to. That will mean that flight of foreign capital from India will also slow down. The other good report is that crude prices have gone down to $81 per dollar and may ease further if Opec+ grouping does not cut production to shore up the falling prices.

Although it is important for the RBI to keep inflation in check and to stay ahead of the inflation curve (it was criticized in the past for having delayed its action in this respect), it is also important not to hike rates too much and too fast as it will hamper growth. If easing crude prices help in reducing inflation, the RBI will have space to slow down its money tightening measures. That would help in pushing for growth.