Hope As An Antidote To Despair

Hope As Antidote To Despair

RBI Governor Raghuram Rajan stuck to his high-interest regime in yet another learned sounding but pusillanimous review, his fifth since he took over. He seems to care nothing for symbolism and the gesture that enthuses, and like an unbending Robespierre, wants to drive in fiscal discipline, sharp as stakes, into the Indian body politic; even if it’s the last thing he does!

This time, his apologists, who seem to be legion, cited many things; reminiscent of the voluble blind men of the fable describing an elephant from their own unique perspectives. One talking head said the fiscal deficit was already at 90 per cent of the budgeted limit, implying cutting rates, by say, 25 bps would have tipped over the apple cart. He didn’t care to mention the great reductions in the Current account deficit (CAD), due to the precipitous fall of imported oil prices however. Another said the banks and their NPAs are in a parlous state. Another allowed that every head of inflation was indeed down, but what’s to say it won’t rear up again? One said it was not about inflation but the currency.  The RBI was not cutting in order to protect the rupee.

The Governor, an inflation hawk par excellence, himself said it wasn’t yet time to cut rates. He wasn’t comfortable with the state of the economy- the effects of the slightly deficient monsoon had not yet fully played out over farm produce and food prices. He wasn’t happy with the data on various aspects and would cut when the flow of data drives him to do it. For now, he wasn’t sure that things had turned the corner in any convincing manner.  

Governor Rajan ignores the fact that the US is growing again after  the coddling of 6 years of near zero interest rates, and massive, note-printing stimulus. Perhaps he is content to see India with a 5-6% growth rate, because it is bigger and better than everyone else, except a weakened China, which still outdoes India. But the jobs Modi has promised the young, need an 8% GDP or more, year after year.

Rajan must, given the tone and tenor of his pronouncements, be looking for the perfect moment. This is a scary thought, because it is unlikely to ever arrive, particularly in a chaotic country like India, with an inefficient but gargantuan bureaucracy, and Government to match. Or else, the Governor is not only pathologically cautious, but is tacitly blaming the six -month old Modi Government for not doing  enough to get growth back on track.

His apologists agree.They say that just cutting interest rates may improve sentiment, but won’t actually kick start the investment cycle by itself. ‘Sentiment’, of course, was not something the UPA Government cared to worry about. It drove the Indian economy instead, with its Stalinist focus on a showy welfarism, and what Rahul Gandhi thought was a chic anti-business stance - straight into the none to ‘swatchh’ toilet.

Now that the UPA is gone, it seems to have left behind  a very able Trojan Horse in the form of Governor ‘anti-inflation’ Rajan.

That Finance Minister  Arun Jaitley is going along with the misguided  Mr. Rajan, even after publicly calling for rate cuts in December 2014, not once but several times, is somewhat mystifying. One hopes that he cannot possibly be seduced by the soothing, ‘dovish’ talk of an interest regime of 1.5 to 2 per cent sometime in the misty future; when, and if, the situation allows it. Rajan also said, other things being  equal, that he might begin to cut rates early in 2015.

Now all hopes, to serve as an antidote to despair, have been transferred to the Annual Budget in February 2015. Business and industry, though it is putting a brave face on the goings on, is grimly hoping that it too does not turn out to be a damp squib. There are a lot of good people working on it to be sure, and Jaitley keeps saying it is going to be full of ‘second generation reforms’. But action must surely follow this torrent of talk. The Stock Market too is having trouble scaling new peaks with nothing happening.

Already, it appears, that neither GST, nor the Insurance Bill will see passage in this Winter Session of Parliament.  Frustratingly, nothing big seems to be going through. Small mercies: such as petrol, diesel, domestic cooking gas, and aviation fuel prices, have indeed been cut.

This Government, by letting a Governor of the RBI fly his kite unhindered, seems to be ignoring the monumental expectations of real progress the people harbour. This gradualism, incrementalism, timidity, downright slowness in economic affairs, somehow belies this Government’s massive electoral mandate, and its continued skill at winning the Assemblies.

 The goodwill and patience cannot last indefinitely. It would be a pity if the Modi Government degenerates into a bad  copy of the UPA, ineffectual, congratulating itself all the while, even as the people are unhappy.  

(827 words)

December 2^nd, 2014

Gautam Mukherjee