RBI governor Raghuram Rajan was not far from the truth when he said that India’s economy was much like the one-eyed man being king in a land full of blind people. The developed countries, and the World Bank and IMF, never cease to talk about India being a “sweet spot” and a “sea of calm” in a stormy world. The Media Watch publication in Washington quite curiously asked Dr Rajan, who is there for the IMF and World Bank spring meeting, what his “secret sauce” was for this “bright spot”. Dr Rajan has been given a lot of credit for this due to his policies and for constantly reminding the government of the need to expedite supply-side bottlenecks and then provide stimulation for the demand side.
The government, particularly the Prime Minister, has started implementing various reforms because while India is growing at over 7 per cent, it has to grow at a double-digit rate if there is to be real inclusive growth, especially involving the population at the bottom of the pyramid. It is interesting that Dr Rajan told his interviewer in Washington that India was at the tipping point, where we can achieve what we believe is our medium-term growth potential.
But more needs to be done. The economy, as he said, is picking up with investment coming in, the current account deficit is under control as are the fiscal deficit and food inflation. However, this situation is still a work in progress and the Narendra Modi government is aware of this. It needs to move faster, especially on the ease-of-doing-business parameters. It has to get the state governments to fall in line as much of the ease-of-doing-business parameters are dependent on the states and the local bodies. Prime Minister Modi has to get his MLAs and a huge number of MPs active in spreading awareness of the government’s several job-generating schemes and also demand accountability from ministers and local bodies concerned with permissions and processes.
Dr Rajan has also held out hope repeatedly of further rate cuts, particularly if there is a good monsoon as predicted by IMD. Though he has already cut rates by 1.50 per cent in the last year, he has been trying hard to get the banks to pass on these cuts to the borrowers.
The banks have been making excuse after excuse to avoid passing on the rate cuts and though most of these excuses have been attended to, they are still not doing the needful. It is also a mystery why the media, particularly the business press and channels, do not prod the banks in the same way as they are quick to mention the need for RBI to cut rates each time the inflation rate comes lower or the IIP numbers are down.
