The message from Mint Street, where the country’s central bank is located, has disappointed the agents of the real sectors of the economy as they had been pining for either a repo rate cut or a minor tweaking of the cash reserve ratio (CRR) so that more funds would be available to them at reasonable rates.

Living up to his, by now, familiar image of springing surprises by not falling in line with the expectations of stakeholders in the economy, the RBI Governor, Dr D. Subbarao, has this time round not tinkered with the rates.

His contention that “our assessment of the current growth-inflation dynamic is that there are several factors responsible for the slowdown in activity, particularly in investment, with the role of interest rates being relatively small” might add salt to the wounds of trade and industry writhing under a high-cost economy.

More than that, his reference to deficient investment conditions in the economy is a reproof that the ruling dispensation in the Centre was not doing anything substantial to revive growth impulses.

Rightly, the policy review recalls estimates suggesting that the real effective bank lending interest rates, though positive, remain comparatively lower than the levels seen during the high growth phase of 2003-08 when the Indian economy was cruising on a high growth trajectory of over 8 per cent, before it was slowed by the global financial meltdown and the associated contagion ill-winds.

No doubt, the argument for a rate cut all stems from the unassailable ground realities that the economy has slowed during the last three quarters and it is precisely during the last few months that the Government appeared none too bothered about its growing fiscal flab, manifest in both the fiscal and current account deficits.

The Government’s massive borrowing programme has not only pre-empted funds available for private players but also, in the process, pushed up the borrowing costs for trade and industry.

In such a situation, where the monetary brakes applied by the central bank as many as 13 times did not lead to desirable results with the fiscal mess remaining the Achilles’ heel of the economy.

Given the coalition Government’s inability to institute cost recovery in items such as diesel, when the global crude price was on a rollercoaster, price stability is but a lost cause.

It is small wonder that the consumer price index inflation which really hurts the aam admi rose from 8.8 per cent in February to 10.4 per cent in April. Under this circumstance, there is scarcely any point in shooting the messenger instead of addressing and redressing the governance deficit that is basically at the root of the fiscal and current account deficits that afflict the economy today.

geeyes@thehindu.co.in

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