Thought for the day
“Most people do not really want freedom, because freedom involves
responsibility, and most people are frightened of responsibility.”
-
Sigmund Freud
(Austrian, 1856-1939)
Word for the day
Schmaltz
(n)
Exaggerated sentimentalism, as in music or soap operas.
(Source: Dictionary.com)
Teaser for the day
Many senior Congress leaders are rumored to be on their way
to long holidays for rejuvenating themselves.
If true, Modi ji can say that he has achieved Congress Mukt
Bharat for few weeks at least.
“Lord, make me chaste, but not just yet”
Some media reports in past couple of weeks have suggested that
BJP leadership may not be comfortable with Raghuram Rajan continuing as RBI
governor. Though there no explicit confirmation or denial from BJP side, the
tenor of media reports and subsequent comments by the incumbent FM, comments of
the governor himself and utterances of some senior BJP leaders suggest that the
smoke is not without fire.
Though not a great admirer of the suave governor myself, I
believe he is apolitical, unlike some great global economists who have openly
taken sides during the recently concluded elections. As such, the new
government may not want to disturb a critical organ of economy in haste. In my
view, the credit policy due in June first week should give ample indication how
well the government and the governor are likely to get along.
In my view, there could be three potential points of
disagreement between BJP and the governor, viz., (a) INR exchange rate, (b)
benchmark rates and (c) restriction on gold imports.
During the election campaign BJP has likened the INR weakness to
instability of Indian economy and failure of UPA government. As such it may
want INR to strengthen so that it could score some political points. BJP would
also like to return favor to its core business and trader constituencies by
easing rates and lifting restriction on gold import.
Through stronger INR it may be able to bring down fuel prices in
short term. Also, a sense of industrial revival could be created through lower
rates and easier credit. A lower inflation statistic and improved employment
environment could help it sail through the budget session of the Parliament.
These are however at best some first aid solutions. The economy
would need much more fundamental measures to get on a sustainable 6-7% growth
path. So far I have not heard anything to this end.
Insofar as linking INR exchange rate to national pride is
concerned, the following excerpts from my favorite BoB McTeer’s blog are
pertinent to note.
“When the Federal Reserve adopted a super easy monetary policy
in response to the financial crisis and recession, many analysts, along with
their predictions of hyper-inflation, predicted a collapse of the dollar.
Furthermore, many advocated measures to strengthen the dollar in foreign
exchange markets. It was widely believed that what we needed was not a weak
dollar, but a strong dollar. Larry Kudlow and many of his guests pined for
‘King Dollar.’
My position back then was
that we need a strong dollar in normal times to support a high standard of
living, but, during a steep recession and anemic recovery, a strong or stronger
dollar would inhibit the recovery. My line was that a strong dollar is
desirable eventually, but not during a recession or weak recovery. I compared
my position on a strong dollar to St. Augustine’s position on chastity. “Lord,
make me chaste, but not just yet.”
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