{"id":2354,"date":"2013-10-30T12:58:39","date_gmt":"2013-10-30T07:28:39","guid":{"rendered":"http:\/\/teekhapan.wordpress.com\/?p=2354"},"modified":"2013-10-30T12:58:39","modified_gmt":"2013-10-30T07:28:39","slug":"rbi-rate-hike-when-mauni-baba-takes-onus-for-economic-woes","status":"publish","type":"post","link":"https:\/\/vivekkaul.com\/2013\/10\/30\/rbi-rate-hike-when-mauni-baba-takes-onus-for-economic-woes\/","title":{"rendered":"RBI rate hike: When Mauni baba takes onus for economic woes"},"content":{"rendered":"

\"India's<\/a>Vivek Kaul<\/span>
\nIt was one of those rare days when\u00a0Mauni baba\u00a0<\/i>had decided to talk.
\n\u201cWhat man Chidu you send these guys to the Reserve Bank and suddenly they decide to have a mind of their own,\u201d he told Chidu, who was busy thinking about new ways to send out income tax notices to tax payers.
\n\u201cYes sir. I had great faith in the professor. But the first thing he did was raise the repo rate,\u201d replied Chidu.
\n\u201cIt is the R effect,\u201d explained\u00a0Mauni baba.\u00a0<\/i>\u201cFirst Reddy, then Rao and now Rajan. All from the South of the Vindhyas. And I thought Sikhs were a rebellious race. You know\u00a0sadda haq aithe rakh\u00a0<\/i>and all that.\u201d
\n\u201cYes, the three Rs were so humble and docile while they were in Delhi,\u201d said Chidu. \u201cWonder what happened to them as soon as they landed in Mumbai.\u201d
\n\u201cNext time we will appoint my man Monty to the post,\u201d said\u00a0Mauni baba.\u00a0<\/i>\u201cAt least he will listen to me and stay silent.\u201d
\n\u201cYes sir. That sounds like a great idea,\u201d remarked Chidu. \u201cMadam will also like it.\u201d
\n\u201cAlso, we should move the Reserve Bank to Delhi, then it will be easier to keep the governors under control.\u201d
\n\u201cBrilliant idea sir\u00a0ji<\/i>,\u201d responded Chidu. \u201cThere is too much independence in the Mumbai air. \u201d \u201cBut\u00a0Nana ji<\/i>\u00a0hasn’t Rajan done the right thing by raising the repo rate,\u201d said\u00a0Mauni baba’s\u00a0<\/i>granddaughter, who had suddenly entered the room.
\n\u201cArre beta<\/i>,\u201d\u00a0said\u00a0Mauni baba,\u00a0<\/i>looking lovingly at his granddaughter. \u201cWhat do you know about all this?\u201d
\n\u201cNana ji,\u00a0<\/i>you know\u00a0na\u00a0<\/i>I am studying economics at the University of Chicago.\u201d
\n\u201cOh, yeah, your mother told me, but given that I have a country to run, I keep forgetting,\u201d replied\u00a0Mauni baba<\/i>.
\n\u201cReally?\u201d said the granddaughter. \u201cBut I just heard Chidu uncle telling someone on the phone that you only do what Madam asks you to do.\u201d
\n\u201cArre beta.\u00a0<\/i>What are you saying? You must be mistaken. I did not say anything like that,\u201d said Chidu, looking very embarrassed, as he got up from his chair.
\n\u201c\u00a0Kya yaar\u00a0<\/i>Chidu. Sit down. Don’t worry. I have seen everything. I don’t get upset too easily,\u201d said\u00a0Mauni baba\u00a0<\/i>trying to reassure Chidu.
\n\u201cSo\u00a0beta\u00a0<\/i>why do you think Rajan uncle has done the right thing?\u201d asked Chidu, trying to divert attention from his gaffe.
\n\u201cUncle, one of my professors told us about Milton Friedman and his views on inflation. In fact, he quoted a paragraph out of Friedman’s book\u00a0Money Mischief \u2013 Episodes in Monetary History.\u201d
\n\u201c<\/i>And do you remember that paragraph?\u201d asked Chidu.
\n\u201cOh yes I do. Like all good Indian students, I am good at\u00a0ratta maar.\u201d
\n\u201c<\/i>So what did Friedman write?\u201d asked\u00a0Mauni baba. \u201c<\/i>Tell us about it\u00a0beta.\u201d
\n<\/i>\u201c\u201cThe recognition that substantial inflation is always and everywhere a monetary phenomenon is only the beginning of an understanding of the cause and cure of inflation\u2026Inflation occurs when the quantity of money rises appreciably more rapidly than output, and the more rapid the rise in the quantity of money per unit of output, the greater the rate of inflation. There is probably no other proposition in economics that is as well established as this one,\u201d is what he wrote,\u201d came a long wielding response from the granddaughter.
\n\u201cWooh!\u201d that was fantastic. What memory,\u201d exclaimed Chidu. \u201cReminded me of Amitabh Bachchan.\u201d
\n\u201cBachchan?\u201d asked\u00a0Mauni baba. \u201cWo kahan se aa gaya<\/i>?\u201d
\n\u201cSir. The little speech reminded me of what Bachchan once said.\u201d
\n\u201cWhat did he say?\u201d asked\u00a0Mauni baba.
\n<\/i>\u201cYou see the whole country of the system is juxtapositioned by the hemoglobin in the atmosphere
\nbecause you are a sophisticated rhetorician intoxicated by the exuberance of your own verbosity<\/i>.\u201d
\n\u201cWhat?\u201d
\n\u201cMy name is Antony Gonzalves,\u201d said Chidu, breaking into a jig.
\n\u201cShut up. The girl is trying to make a point,\u201d said a rather irritated\u00a0Mauni baba.
\n<\/i>\u201cSorry sir.\u201d
\n\u201cHaan beta.\u00a0<\/i>So what were you saying?\u201d
\n\u201cNanu,\u00a0<\/i>I just said that inflation is a monetary phenomenon, which means as the money going around in the financial system increases, so does inflation.\u201d
\n\u201cThat’s right. And how can we control it?\u201d asked\u00a0Mauni baba,\u00a0<\/i>as the economist in him suddenly woke up.<\/span><\/span><\/span>
\n\u201cWe can control inflation by raising interest rates.\u201d
\n\u201cAnd?\u201d
\n\u201cAnd the Reserve Bank has done the correct thing by raising the repo rate or the rate at which it lends to banks.\u201d
\n\u201cSo?\u201d
\n\u201cAt higher interest rates people will borrow lesser given the higher EMIs they will have to pay.\u201d
\n\u201cAnd how will that make a difference?\u201d
\n\u201cSince people will borrow lesser, they will spend lesser as well. This will mean that a lower amount of money will chase goods and services, and that will bring inflation under control.\u201d
\n\u201cWow!\u201d blurted out Chidu. \u201cAnother economist in the family.\u201d
\nMauni baba\u00a0<\/i>was impressed. But he had to tell her the truth.
\n\u201cWell beta. This needs a little more explaining,\u201d he told her.
\n\u201cPlease tell me, I am all ears,\u201d said the granddaughter.
\n\u201cIn 2007-08 the government spent Rs 7,12,671 crore. This year the number is expected to be Rs 16,65,297 crore or 133.7% higher. This has led to more money entering the economy and chasing the same amount of goods and services and thus driving up inflation.\u201d
\n\u201cAs Friedman said?\u201d
\n\u201cYes. Exactly like that. During the same period, the fiscal deficit of the government has risen by 327% from Rs 1,26,912 crore to Rs 5,42,499 crore. Fiscal deficit, as you would know, is the difference between what a government earns and what it spends.\u201d
\n\u201cYes. So?\u201d asked the granddaughter.
\n\u201cThe government makes up for this difference by borrowing money. With the mammoth increase in fiscal deficit, it has had to borrow more and more. This has crowded out the private borrowers.\u201d
\n\u201cI know where you are getting at,\u201d said the granddaughter with a huge smile on her face.
\n\u201cHence, every time Chidu uncle asks banks to cut interest rates on their loans, I have a good laugh, and so should you, from now on. With the government borrowing more, there is a lower pool of money for the private borrowers like banks to borrow from. Hence, they need to offer a higher rate of interest on their deposits. And this means a higher rate of interest on loans.\u201d
\n\u201cInteresting.\u201d
\n\u201cA large part of inflation has been because of food. In fact, half of the inflation over the last five years has been because of a rise in food prices. As per the latest wholesale price inflation numbers, the price of onion has risen by 323% in the last one year. Vegetable prices during the same period went up by 89.37%. Fruits were up at 13.54%. And all in all food prices were up by 18.4% in comparison to the same period last year.\u201d
\n\u201cSo?\u201d
\n\u201cSo the RBI cannot do anything about inflation. It does not matter if they hike repo rate or not,\u201d explained\u00a0Mauni baba<\/i>. \u201cInterest rates will not fall unless the government controls the fiscal deficit. And onion prices won’t fall unless Power Man wants them to.\u201d
\n\u201cSo why don’t you just control the fiscal deficit\u00a0Nanu<\/i>?\u201d asked the granddaughter.
\n\u201cWell, that is for Madam to decide.\u201d
\n\u201cBeta,\u00a0<\/i>we are running many programmes for the poor. And that is why our fiscal deficit is high,\u201d said Chidu.
\n\u201cYes, I know all about those subsidies. You offer subsidies to those who drive diesel cars and people who use cooking gas cylinders. Since when did they become poor?\u201d asked the granddaughter.
\n\u201cNot like that\u00a0beta.\u00a0<\/i>We offer food subsidies to the poor.\u201d
\n\u201cOh yes, I read about that Chidu uncle. You sell food through the public distribution system where more than 40% of the food gets siphoned off.\u201d
\n\u201cBeta,\u00a0<\/i>Madam has a vision for this country. You are too young to understand that, now you should go and let your\u00a0Nanu<\/i>\u00a0and me discuss serious economic matters.\u201d The granddaughter soon left the room.
\n\u201cShe will turn out to be an excellent economist one day,\u201d\u00a0Mauni baba<\/i>\u00a0said proudly with a big smile on his face.
\n\u201cWell. And what was all that you were telling her?\u201d asked Chidu, a tad irritated.
\n\u201cWhat?\u201d
\n\u201cAll this bit about the government being responsible for inflation and the Reserve Bank not being able to do anything about it.\u201d
\n\u201cYes. Isn’t that how it is?\u201d
\n\u201cMadam, won’t like this.\u201d
\n\u201cReally?\u201d
\n\u201cI am going to go and tell her and the\u00a0shehzada\u00a0<\/i>everything.\u201d
\n\u201cYuvraaj\u00a0bolo Chidu.<\/i>\u201d
\n\u201cWhat you are not afraid if I go and complain to Madam?\u201d asked Chidu, not being able to figure out how\u00a0Mauni baba\u00a0<\/i>continued to be so jovial.
\n\u201cNo.\u201d
\n\u201cYou might lose your job.\u201d
\n\u201cChidu, I thought you were a smart man.\u201d
\n\u201cAs in?\u201d
\n\u201cWell, what is my name?\u201d
\n\u201cMauni baba,<\/i>\u201d said Chidu. \u201cBut what’s that got to do with this?\u201d
\n\u201cAre you really that dumb?\u201d asked\u00a0Mauni baba. \u201c<\/i>Well who is going to believe you when you go and tell them that I spoke for as long as I did.\u201d
\n\u201cOh.\u201d
\n\u201cI think you have been spending too much time in Delhi. It’s time to go to Mumbai, Chidu,\u201d said\u00a0Mauni baba,\u00a0<\/i>having the last laugh.
\nThe article originally appeared on www.firstpost.com<\/a> on October 30, 2013\u00a0<\/span><\/span><\/span>
\n(Vivek Kaul is a writer. He tweets @kaul_vivek)\u00a0<\/b><\/i><\/span><\/span><\/span>
\n <\/p>\n","protected":false},"excerpt":{"rendered":"

Vivek Kaul It was one of those rare days when\u00a0Mauni baba\u00a0had decided to talk. \u201cWhat man Chidu you send these guys to the Reserve Bank and suddenly they decide to have a mind of their own,\u201d he told Chidu, who was busy thinking about new ways to send out income tax notices to tax payers. … <\/p>\n

Read more<\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"qubely_global_settings":"","qubely_interactions":"","_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[31,33,39,68],"tags":[676,1740,2248,3053,3060],"qubely_featured_image_url":null,"qubely_author":{"display_name":"Vivek Kaul","author_link":"https:\/\/vivekkaul.com\/author\/vivekkaul\/"},"qubely_comment":0,"qubely_category":"Financial Crisis<\/a> Firstpost<\/a> Humor<\/a> Satire<\/a>","qubely_excerpt":"Vivek Kaul It was one of those rare days when\u00a0Mauni baba\u00a0had decided to talk. \u201cWhat man Chidu you send these guys to the Reserve Bank and suddenly they decide to have a mind of their own,\u201d he told Chidu, who was busy thinking about new ways to send out income tax notices to tax payers.…","jetpack_sharing_enabled":true,"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/posts\/2354"}],"collection":[{"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/comments?post=2354"}],"version-history":[{"count":0,"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/posts\/2354\/revisions"}],"wp:attachment":[{"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/media?parent=2354"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/categories?post=2354"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/tags?post=2354"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}