India’s economy has seen a spate of positive numbers — from the drop in wholesale and retail inflation, and a mild rise in industrial production index for September from 2.5 per cent to 2.7 per cent. These, together with the drop in global crude oil, commodities and food prices, has led to a chorus of demands for the RBI to reduce lending rates in its bi-monthly monetary policy statement on December 2. The minutes of the RBI’s last pre-policy meeting indicated that Governor Raghuram Rajan was in a minority as most members of the policy committee were in favour of a rate cut. Is there now a chance that Dr Rajan and the RBI will give growth a chance?
Inflation rates do look benign, even though a section of economists fear food inflation could be fuelled by the expected drop in the kharif crop output of cereals, pulses and oilseeds due to shortage of rains in some parts of India. But the downward trend in inflation looks steady, while that of growth is inconsistent. The small and medium sectors, the backbone of manufacturing, remain under great stress, and despite considerable concern, action on the ground is yet to be meaningful — such as loans at more reasonable prices. One of the main boosters of growth is investment, and this is not picking up. The private sector is waiting for the government to invest, while the government, in the name of holding the fiscal deficit down, is not investing in new projects. The latest survey by the Boston Consulting Group observes that investment depends on many factors like infrastructure, those related to the business environment, including operational ease, transparency and access to credit.
Due to these factors, Indian companies too still prefer to invest abroad. A paper brought out by Assocham said that in 2013-14, Indian investments abroad were around $36.9 billion till September 2014, compared to $26.8 billion in 2012-13. One can, therefore, imagine the dilemma of the RBI. Perhaps there is a way forward. Let the chambers of commerce give an assurance to finance minister Jaitley and Dr Rajan on how much they would add to production if interest rates are cut. That sounds fair.
How long can the economy live on a mountain of hope invested in just one man — Prime Minister Narendra Modi? It’s very apt to quote Langston Hughes, who had written: “Hold fast to dreams, For if dreams die, Life is a broken-winged bird, That cannot fly.” India has been a broken-winged bird far too long.
