It’s amusing to see Reserve Bank Governor Raghuram Rajan seeking permission of the Election Commission to grant new banking licenses.
Jairam Ramesh has a point – the EC sure is running India!
That for a constitutional body where two of the three members don’t have constitutional protection from impeachment or even an oath of office.
Technically, Rajan should have done the same for the credit policy on Tuesday – but just to be safe, he kept the rates changed anyway.
The capitulation of the executive before the election watchdog is amusing, if not outright alarming. Not so long ago, the Defence Secretary sought EC’s nod to start the process of selecting a new navy chief.
How on earth would such an appointment intrudes into the model code of conduct (MCC) is anybody’s guess!
Things have now come to such a pass that the Defence Secretary recently sent another letter to the EC asking for directions on importing some edible oil for the jawans! This prompted EC to issue a supercilious rejoinder allowing Defence Ministry to function!
Give us a break folks!
Your MCC is meant to ensure the level-playing field isn’t disturbed between the Government in power and other parties.
But in a recent case related to affixation of gas prices, an increase (sic) you deemed contracted increase in natural gas prices as a potential violation of MCC. It beats me how the incumbent Government would have gained votes here!
Anyway, policy paralysis is a given now – and one can only hope that a decisive Government can replace the present one at the soonest.
So, back to Raghuram Rajan and his play safe: rates stay, as what a noted editor has described, in the 7-8-9 corridor – a seven per cent reverse repo rate, an eight per cent repo rate, and a nine per cent marginal standing facility (MSF) rate.
Amidst this credit freeze, inflation remains the bad news for the next Government.
As Rajan said,’ the recent fall in headline inflation was exaggerated by the sharp seasonal fall in vegetable prices, and this happy situation could end soon.’
“Since December 2013, the sharper than expected disinflation in vegetable prices has enabled a sizable fall in headline inflation. looking ahead, vegetable prices have entered their seasonal trough and further softening is unlikely. Meanwhile, CPI (consumer price index) inflation excluding food and fuel has remained flat.”
The good thing about Rajan is his consistent focus on CPI. That’s a true measure of the man’s middle-class roots not to mention his sharp understanding of how WPI is a bit of a dinosaur.
That a nation’s central bank Governor isn’t fooled by any fall in headline inflation driven by the base effect (high price indices of June-November 2013 may make inflation look artificially low this year during those months) is a welcome thought. It checks politicians from barking up the wrong tree,
“There will also be a downward statistical pull on CPI inflation exerted by base effects of high inflation during June-November 2013. It is critical to look through any transient effects, including these base effects, which could temporarily soften headline inflation during 2014.”
“There are risks to the central forecast of 8 per cent CPI inflation by January 2015 stemming from a less-than-normal Monsoon due to possible el nino effects; uncertainty on the setting of minimum support prices for agricultural commodities and the setting of other administered prices, especially of fuel, fertilizer and electricity…”
As for the economy the new Government will inherit, Rajan is blunt in his own suave way.
“lead indicators do not point to any sustained revival in industry and services as yet, and the outlook for the agricultural sector is contingent upon the timely arrival and spread of the monsoon.”
The prescription: “Easing of domestic supply bottlenecks and progress on the implementation of stalled projects already cleared should brighten up the growth outlook, as would stronger anticipated export growth as the world economy picks up.”
Our next Government should be listening!
(The columnist works on RIl in the intersect of media, regulation and strategy. Views express here are personal. Tweets: @throhitbansal)