Thousands of Indian women walk many miles every day to fetch water and firewood to meet the daily food requirements of their families.
This may not kindle the attention or sympathies of economy watchers, analysts and TV anchors as much as a RBI move to keep policy rates untouched,
There is disappointment in the air if the RBI does not oblige with policy rate cut.
This is especially when Finance Minister P. Chidambaram had – a day before the RBI policy – wanted everybody in India to take note of the Centre’s new fiscal consolidation roadmap.
So when a disappointed Chidambaram said (after the RBI policy announcement) that he was prepared to walk alone, if need be, to revive the challenges of growth, everyone took notice.
For any signs of disagreement between the Government and the RBI on any policy action is not a happy situation. It is the surest recipe for disaster.
This is especially so when the aam admi is struggling to cope with the continuing high levels of inflation, which is the most cruel from of tax on the poor.
In his closing remarks at the recent policy review announcement, RBI Governor D. Subbarao made it clear that persistence of inflation pressure even as growth moderated remains a key challenge.
Of particular concern is the stickiness of core inflation, mainly on account of supply constraints and cost push of rupee depreciation.
He unequivocally said that managing inflation and inflation expectation should be the primary focus of monetary policy.
As recent policy initiatives of the Government start yielding results in terms of revitalising activities, they will open up space for monetary policy to work in concert to stimulate growth.
By indicating the risk of acceleration of inflation in the next three months, Subbarao has tactfully defended his move to keep policy rates unchanged.
This should take the heat off the RBI in the next few months.
One must also recognise that the effect of diesel price hike and electricity tariff increase in certain States will get reflected in the inflation numbers in the coming days.
Subbarao has also indicated reasonable likelihood of monetary easing in the fourth quarter. This is conditioned by the evolving inflation-growth dynamics.
All eyes will be on RBI at its January 29 policy review meeting next year. So, until then one need not expect any big move from the RBI in terms of policy rate cuts.
So has the RBI done the right thing by keeping policy rates unchanged?.
Majority of the economists and policymakers think so, arguing that the central bank has taken the right measures under the current extenuating circumstances.
PMEAC Chairman C. Rangarajan said soon after the policy that the measures were in the right direction, given the difficult circumstances.
He noted that a mere repo rate cut would not be enough as it would have brought only a signalling effect.
A repo rate cut had to be accompanied by a cash reserve ratio or an open market operation, Rangarajan had said.
Since April, RBI has sought to balance growth-inflation dynamics through calibrated easing.
The crucial issue that is being debated in India is whether the pursuit of the objective of price stability by monetary authority undermines the ability of the economy to attain and sustain high growth.
There are some studies which show that growth rates become increasingly negative at higher rates of inflation.
So, with inflation remaining above the comfort zone of the central bank, it is clear that price stability has to remain the dominant objective of monetary policy, say economists.
That exactly has been the approach of RBI this time round.
Let us hope that Chidambaram and Subbarao will get some time in Mexico, where they are attending the G20 meeting of finance ministers and central bank governors, to sort out their public differences over monetary policy.