The Hindu Business Line : Liquidity concerns

This is with reference to “Is the RBI going overboard to ease liquidity?” (Business Line, October 22). The article rightly brings out the danger of pumping in high powered money into the economy which is facing “mild slowdown” in the words of the Finance Minister, Mr P. Chidambaram, coupled with inflation of the order of 12 per cent, reminiscent of the 1980s. The interesting, but surprising, thing is that no bank is queuing up to avail of the offer.

So, is the liquidity crunch for real? Or, are the banks too afraid to lend? Economics is driven essentially by market sentiments and how can the sentiments be turned positive?

The author suspects that “the house of monetary discipline assiduously built over the years is being demolished brick by brick for electoral gains”. Mr Chidambaram, in his demand for grants, has averred, “While they (BJP) had inherited a bad economy from me (the United Front Government) and I had inherited a good economy from them, they will not come to power to inherit the economy from me and we will continue to run the economy”! Does what the author suspect echo in the words of Mr Chidambaram?

With the multiplier effect, stated to be 4.96 in the article, the gloom of hyperinflation may not be unreal. It is the real economy that needs shoring up to stop it from degenerating to stagflation.

N. R. Govinda Sharma Mysore

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