"A man, to be
greatly good, must imagine intensely and comprehensively; he must put himself
in the place of another and of many others; the pains and pleasures of his
species must become his own."
—Percy Bysshe Shelley
(English, 1792-1822)
Word
for the day
Fletcherize (v)
To chew (food) slowly and thoroughly.
Malice
towards none
Arrogance cannot touch
wisdom. This inherent protection distinguishes wisdom from intelligence.
We need more wise people to
manage policy. Intelligence is mostly dispensable.
First random thought this morning
Broken table, high velocity winds, no coach, no room in Olympic village
- are some of the platitudes for not winning medal at Olympics.
I wonder why can't our sportspersons simply say that we played our
best (which they certainly did); and the better amongst the world's best won
the medal. I mean it is plain truth and must be totally acceptable to all.
Coffin before cadaver
The outgoing RBI governor made his last policy statement
yesterday. Many had anticipated this to be his swan song - something meaningful
that will work as a guiding principle for his successor and the newly
constituted monetary policy committee.
Unfortunately, the statement, as usual, had nothing noteworthy. It
is full of prejudice and incongruence.
Much worse, it clearly shows the absolute lack of interest on part of
the incumbent RBI leadership.
In fact, I get a feeling that the policy statement has nothing to
do with the policy stance, which has been taken regardless of anything
mentioned in the statement. It is thus a classic case of "coffin before
cadaver".
The statement, for example, notes about the global economic
conditions as follows:
·
Since June 2016, several developments have
clouded the outlook for the global economy.
·
The near-term outlook in emerging markets is
still fragile.
·
World trade remains sluggish in the first half
of 2016.
·
Yields on government bonds have fallen further
and the universe of negative yielding assets is expanding at a fast pace,
reflecting high risk aversion and expectations of further monetary
accommodation by systemic central banks.
·
Commodity prices, barring those of precious
metals, remain soft due to weak demand.
However, the statement does not make any attempt to correlate
these conditions to the Indian economic outlook. There is nothing to suggest
that the policy stance assimilates the global conditions and is designed to
provide a cover to the Indian economy from the likely cascading impact of a
global slide. Addition of, nowadays usual, "whatever it takes" in the
policy statement would have gone a long way in improving the sentiment of the
stakeholders.
On the domestic economic outlook, the policy statement inter alia,
notes that:
·
On the domestic front, several factors are
helping to support the recovery.
·
The target for kharif production set by the
Ministry of Agriculture appears within reach. Industrial production picked up
in May on the back of manufacturing and mining, following a contraction in the
preceding month. Service sector purchasing managers polled the thirteenth
successive month of expansion in July on the basis of a sharp acceleration in
new business.
·
Business confidence is also looking up in recent
months, though the Reserve Bank’s survey for March 2016 suggests that capacity
utilisation, seasonally adjusted, is still weak.
·
Retail inflation measured by the headline
consumer price index (CPI) rose to a 22-month high in June, with a sharp
pick-up in momentum overwhelming 3 favourable base effects. The rise was mainly
driven by food, with vegetable inflation higher than the usual seasonal rise at
this time of the year. Fuel inflation remained subdued, mainly due to sustained
deflation in prices of liquefied petroleum gas.
·
By early August, the cumulative rainfall was 3
per cent higher than the long period average, with more than 80 per cent of the
country receiving normal to excess precipitation. Kharif sowing strengthened after
a lacklustre start, particularly with respect to pulses. Barring cotton, jute
and mesta, sowing of all crops is currently above last year’s acreage
·
Liquidity conditions eased significantly during
June and July on the back of increased spending by the Government which more
than offset the reduction in market liquidity because of higher-than-usual
currency demand.
·
In the external sector, merchandise export
growth moved into positive territory in June after eighteen months. This upturn
was reasonably widespread, covering chemicals, marine products, handicraft,
plastic, rice, electronic and engineering goods. On the other hand, imports
continued to decline, albeit at a slower pace than in recent months.
·
Looking ahead, the momentum of growth is
expected to be quickened by the normal monsoon raising agricultural growth and
rural demand, as well as by the stimulus to consumption spending that can be
expected from the disbursement of pay, pension and arrears following the
implementation of the 7th CPC’s award. The passage of the Goods and Services
Tax (GST) Bill augurs well for the growing political consensus for economic
reforms.
RBI thus recognizes that domestic conditions are favorable whereas
the global outlook is clouded. Business confidence is improving but capacity
utilization is weak. Food inflation is totally seasonal and monsoon augurs well
for the food prices.
It also notes that the consumers are getting huge payouts in terms
of 7th pay commission and direct cash transfer. GST is closer to reality than
ever.
Does RBI not realize that under the circumstances businesses may
need support to convert their confidence into higher capacity utilization; and
inflation feared out of GST cannot be controlled by tight monetary policy.
So why not cut rate upfront and support businesses. In fact not
supporting businesses at this point may actually prove to be inflationary as
demand outstrips the supply.
Just because the governor does not want to take a decision, RBI
cannot leave the economic argument outside the policy stance.
Nonetheless, I am sure that a rate cut, and a large one this time,
is coming before Santa arrives in the town!
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