{"id":8289,"date":"2022-02-13T10:38:47","date_gmt":"2022-02-13T05:08:47","guid":{"rendered":"https:\/\/vivekkaul.com\/?p=8289"},"modified":"2022-02-13T10:40:40","modified_gmt":"2022-02-13T05:10:40","slug":"gabbars-motto-wouldve-been-better-than-latas-song-mr-das","status":"publish","type":"post","link":"https:\/\/vivekkaul.com\/2022\/02\/13\/gabbars-motto-wouldve-been-better-than-latas-song-mr-das\/","title":{"rendered":"Gabbar\u2019s motto would\u2019ve been better than Lata\u2019s song, Mr Das"},"content":{"rendered":"

Shaktikanta Das, the governor of the Reserve Bank of India (RBI), projected optimism in the latest monetary policy by reminding us of the great Lata Mangeshkar song \u201caaj phir jeene ki tamanna hai<\/em> (Now, again, I desire to live),” from the movie Guide.<\/em><\/p>\n

The\u00a0eternal message of optimism<\/em> needed to be projected in order to defend the monetary policy committee\u2019s decision to not raise the repo rate or the interest rate at which the RBI lends to banks. The repo rate has some impact on the interest rates at which banks carry out their lending. When a central bank raises the repo rate it\u2019s essentially signalling that it is getting worried about inflation or the rate of price rise.<\/p>\n

The RBI under Das started cutting the repo rate in February 2019, when it was at 6.5%. By May 2020, it was cut to 4%, which is where it has stayed since. So, the monetary policy has been in what economists like to call accommodative<\/em> for close to two years. Along with cutting the repo rate, RBI also printed money and flooded it into the financial system by buying bonds.<\/p>\n

The idea, in the aftermath of the covid pandemic, understandably, was to drive down interest rates, with the hope that people would borrow and spend more, and industries would borrow and expand, and the government would be able to borrow at low interest rates.<\/p>\n

But the times are changing now, with inflation becoming a global phenomenon. As per the February 5th-11th issue of\u00a0The Economist<\/em>\u00a0global inflation now stands at 6%. Retail inflation in the United States in January stood at 7.5%, the highest since February 1982. In December, the retail inflation in the Euro Area was at 5%, the highest it has ever been since data started to be collected in January 1997.<\/p>\n

Not surprisingly, central banks all across the world have been raising interest rates. The Bank of England has already raised interest rates twice. The Federal Reserve of the United States will have to soon start raising rates to rein in the four-decade high retail inflation.<\/p>\n

Retail inflation in India in December 2021 was at 5.6%, lower than 6% level above which RBI starts to get uncomfortable. Interestingly, the RBI believes that inflation during the next financial year will be at 4.5%. This, given the evidence on offer and the fact that we live in a highly globalized world, seems a tad unlikely.<\/p>\n

Oil prices continue to remain high with the price of Brent crude being at $90 per barrel. Also, the supply chain problems, which had cropped all across the world due to the spread of the covid pandemic, haven\u2019t gone away. Then there is the joker in the pack, on which, as always, a lot depends in the Indian case: a normal monsoon. As Dipanwita Mazumdar, an economist at the Bank of Baroda, puts it: \u201cAnother upside risk to inflation is the possibility of a below normal monsoon. Statistically, with six successive monsoons, there could be a sub-optimal one this year.\u201d<\/p>\n

\"\"<\/p>\n

Further, we have close to 6% retail inflation despite consumer demand at an aggregate level continuing to remain muted. Due to this, companies have been unable to pass on the increase in the cost of their inputs to the end consumers. This can be gauged from the fact that from April to December 2021, the wholesale inflation was at 12.5%, whereas retail inflation was at 5.2%. As Das put it in his statement: \u201cThe transmission of input cost pressures to selling prices remains muted in view of the continuing slack in demand\u201d.<\/p>\n

The lack of consumer demand has held retail inflation down. Nonetheless, companies have started raising prices as consumer demand has started to pick up. As the RBI\u2019s monetary policy statement put it: \u201cThe pick-up in\u2026 bank credit, supportive monetary and liquidity conditions, sustained buoyancy in merchandise exports\u2026 and stable business outlook augur well for aggregate demand.\u201d<\/p>\n

This, in an environment of continued high oil prices, supply chain constraints and more expensive imports, implies higher retail inflation in the months to come, which means the RBI should have started raising the repo rate by now. But it hasn\u2019t.<\/p>\n

So, why has the RBI maintained a status quo? It\u2019s the debt manager of the government. The government\u2019s gross borrowing stood at Rs 12.6 lakh crore in 2020-21. It will end up borrowing Rs 10.5 lakh crore in 2021-22, with plans of borrowing Rs 15 lakh crore in 2022-23. Given this, the RBI has to help the government to borrow at low interest rates.<\/p>\n

To cut a long story short, the RBI is not bothered about retail inflation, controlling which is its primary mandate. It\u2019s more interested in ensuring that the government is able to borrow at low interest rates.<\/p>\n

Finally, Das just quoted one line from the beautiful Lata song written by Shailendra and composed by SD Burman. The next line of the song goes like this: “aaj phir marne ka iraada hai<\/em> ((Now, again, I desire to die)).” The translation doesn\u2019t do justice to Shailendra\u2019s writing which metaphorically captures the tormented state of mind of a married woman who has suddenly found love in another man, at once feeling both exhilaration and guilt and dejection.<\/p>\n

The binaries in economics are never as strong as life and death, nonetheless, they do exist. It\u2019s just that RBI under Das likes to be an optimistic cheerleader<\/em> rather than an institution which should realistically assess the state of the Indian economy.<\/p>\n

Hence, as far as projecting eternal optimism goes, Das should have been quoting the Gabbar Singh dialogue from Sholay <\/em>written by Salim-Javed: “Jo darr gaya samjho mar gaya<\/em> (the one who is afraid is dead),” and not Shailendra, SD Burman and Lata\u2019s song.<\/p>\n

(A slightly different version of this column appeared in the Deccan Herald <\/em>on February 13, 2022.)<\/p>\n","protected":false},"excerpt":{"rendered":"

The Reserve Bank of India under the current governor Shaktikanta Das likes to be an optimistic cheerleader rather than an institution which realistically assesses the state of the Indian economy.<\/p>\n","protected":false},"author":2,"featured_media":8290,"comment_status":"closed","ping_status":"closed","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":[4155,4167,4062,4168,65],"tags":[4532,4529,1740,4530,3053,3061,4531,4082],"qubely_featured_image_url":{"full":["https:\/\/i0.wp.com\/vivekkaul.com\/wp-content\/uploads\/2022\/02\/Shaktikanta_Das_IAS.jpeg?fit=1220%2C1024&ssl=1",1220,1024,false],"landscape":["https:\/\/i0.wp.com\/vivekkaul.com\/wp-content\/uploads\/2022\/02\/Shaktikanta_Das_IAS.jpeg?resize=1200%2C750&ssl=1",1200,750,true],"portraits":["https:\/\/i0.wp.com\/vivekkaul.com\/wp-content\/uploads\/2022\/02\/Shaktikanta_Das_IAS.jpeg?resize=540%2C320&ssl=1",540,320,true],"thumbnail":["https:\/\/i0.wp.com\/vivekkaul.com\/wp-content\/uploads\/2022\/02\/Shaktikanta_Das_IAS.jpeg?resize=150%2C150&ssl=1",150,150,true],"medium":["https:\/\/i0.wp.com\/vivekkaul.com\/wp-content\/uploads\/2022\/02\/Shaktikanta_Das_IAS.jpeg?fit=400%2C336&ssl=1",400,336,true],"medium_large":["https:\/\/i0.wp.com\/vivekkaul.com\/wp-content\/uploads\/2022\/02\/Shaktikanta_Das_IAS.jpeg?fit=768%2C644&ssl=1",768,644,true],"large":["https:\/\/i0.wp.com\/vivekkaul.com\/wp-content\/uploads\/2022\/02\/Shaktikanta_Das_IAS.jpeg?fit=1024%2C859&ssl=1",1024,859,true],"1536x1536":["https:\/\/i0.wp.com\/vivekkaul.com\/wp-content\/uploads\/2022\/02\/Shaktikanta_Das_IAS.jpeg?fit=1536%2C1289&ssl=1",1536,1289,true],"2048x2048":["https:\/\/i0.wp.com\/vivekkaul.com\/wp-content\/uploads\/2022\/02\/Shaktikanta_Das_IAS.jpeg?fit=2048%2C1718&ssl=1",2048,1718,true],"qubely_landscape":["https:\/\/i0.wp.com\/vivekkaul.com\/wp-content\/uploads\/2022\/02\/Shaktikanta_Das_IAS.jpeg?resize=1200%2C750&ssl=1",1200,750,true],"qubely_portrait":["https:\/\/i0.wp.com\/vivekkaul.com\/wp-content\/uploads\/2022\/02\/Shaktikanta_Das_IAS.jpeg?resize=540%2C320&ssl=1",540,320,true],"qubely_thumbnail":["https:\/\/i0.wp.com\/vivekkaul.com\/wp-content\/uploads\/2022\/02\/Shaktikanta_Das_IAS.jpeg?resize=140%2C100&ssl=1",140,100,true]},"qubely_author":{"display_name":"Vivek Kaul","author_link":"https:\/\/vivekkaul.com\/author\/vivekkaul\/"},"qubely_comment":0,"qubely_category":"Inflation<\/a> Low interest rates<\/a> Macroeconomy<\/a> Money printing<\/a> RBI<\/a>","qubely_excerpt":"The Reserve Bank of India under the current governor Shaktikanta Das likes to be an optimistic cheerleader rather than an institution which realistically assesses the state of the Indian economy.","jetpack_sharing_enabled":true,"jetpack_featured_media_url":"https:\/\/i0.wp.com\/vivekkaul.com\/wp-content\/uploads\/2022\/02\/Shaktikanta_Das_IAS.jpeg?fit=1220%2C1024&ssl=1","_links":{"self":[{"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/posts\/8289"}],"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=8289"}],"version-history":[{"count":2,"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/posts\/8289\/revisions"}],"predecessor-version":[{"id":8293,"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/posts\/8289\/revisions\/8293"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/media\/8290"}],"wp:attachment":[{"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/media?parent=8289"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/categories?post=8289"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vivekkaul.com\/wp-json\/wp\/v2\/tags?post=8289"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}