Clamor for interest rate cut is gaining ground day by day. Finance Minister has already lent his moral support for a reduction. He cannot dictate his term to the RBI. That is the beauty of delicate balance of power between union finance ministry and the RBI. While fiscal measures are within the exclusive purview of the finance ministry, monetary policy is tooled by the RBI. There were instances of power equations getting awry: one trying to transgress the turf of the other, leading to bitter exchanges. But consultations between the two are the order rather than exception.
Industry is expecting the long awaited cut to happen now. The government also has created an enabling situation for the RBI to go ahead with the rate cut. Reduction in fuel prices riding on the back of a sliding global price is an enabler. The other is the reduction in the wholesale price index, which registered a five year low low of 2.36% in September. Consumer price index also went south. Industrial output moved up, according to the recent government data released.
The RBI, however cannot loose sight of the ground level realities. Prices of food, vegetable, fruits and poultry prices are still ruling high in the retail market. For instance, tomato prices range between Rs 25 to 35 per kg, potato prices rules at Rs 25 to 45 per kg depending on the quality. Onion prices, though have come down from the peak, is still very high, as compared to the previous seasons. Most of the vegetables have become pricey in the recent days. Cost of medicines has increased after taking out a large number of items from the administered list. The only thing that has remained stagnant or near stagnant are prices of real estate and rentals, which have only limited bearing on the budget of the common man.
The RBI should also take note that the increased DA and salaries are applicable only to those who are in the organized sector or in the salaried group. For many in the informal sector and self-occupied people, their incomes are the same. With the increase in inflation, their purchasing power has considerably eroded. Many of them are tightening their belt. Those who cannot do that are selling their disposable properties or are liquidating their past savings to make both ends meet.
Unfortunately, our print media, particularly financial papers are focusing only the point of view of businesses. Naturally so,because they are their major clients and benefactors. Voices of the common man get downed in the cacophony of well orchestrated campaigns spearheaded by the vested interests. Governance apparatus should fact into their policy decisions unknown and unheard voices.
Not that I am against a cut in the interest rate. If that is needed to kick start the economy, the RBI should not hesitate to do so. But the present governor of RBI is very good at identifying the fault lines. He should do that here also very diligently to see that with the reduction in the interest rates, funds are channelized for productive purposes and not for speculative deals. Such things had happened here earlier.
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