Business Daily from THE HINDU group of publications
Monday, May 11, 2009
ePaper | Mobile/PDA Version | Audio | Blogs
Business Daily from THE HINDU group of publications Monday, May 11, 2009 ePaper | Mobile/PDA Version | Audio | Blogs |
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Opinion
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Editorial Getting the priorities right Demand-push inflation, at this point, seems a distant prospect; policymakers now need to look to ways to lift output by its bootstraps. The RBI Governor, Dr D. Subbarao, has generally been fulsome in his praise of his predecessor Dr Y. V. Reddy as a policymaker who did not compromise on the dangers of price instability that an overheated economy could have generated. Releasing the former Governor’s book, India and the Global Crisis: Managing Money and Finance, Dr Subbarao hoped for another book by him on the winding down of the crisis. In fact, if anybody should author such a trea tise it is Dr Subbarao himself for he is presiding over monetary policy in one of the most dangerous periods in 70 years, a period of systemic collapse of financial institutions and national economies around the world whose repercussions have washed ashore onto India. When most central bankers are grappling with the worst effects of a downturn — deflation, lack of credit, dipping consumer confidence and a shortage of capital — and India witnessing a consistent drop in inflation of a kind not seen in decades, concern about price stability in the aftermath of the crisis strikes a discordant note. The current lack of credit and falling output has every stakeholder worried not the least because banks have been reluctant to lend despite the RBI’s persistent reductions of key rates on the back of falling headline inflation. In this backdrop, to talk of a post-crisis scenario when inflation could become a threat, and the central bank’s role in dampening those fires, may send a message of false optimism and recourse to expedient monetary policy. The task of curbing inflation when warranted is obvious; what isn’t is the ability of current monetary policy to work on the ground and enable the economy to reach that stage where the RBI can then play the role of a price stabiliser. After nine months of rate cuts and other easing measures, the banking system is responding fitfully as credit growth since February attests. Spurt in sales of key sectors such as cement, steel and autos are occasioned by the generosity of Pay Commission awards and hikes in minimum support prices for farmers. What are missing right now are signs that can suggest the economy has finally hit the bottom. At this moment Indian policymakers need to look to ways of lifting output by its bootstraps. The next Government will have to make sure that investment demand strikes root and yields results by way of a growth in consumer confidence- the ultimate signal of an end to the current crisis. Demand-push inflation, at this point, seems a remote prospect. Banks witness sharp fall in credit demand Auto makers enter new fiscal on a positive note RBI cuts repo rates Dr. Reddy in his elements More Stories on : Editorial | Financial Policy | Economy
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