A fortnight ago, two big
developments took place. The new BJP-led government under Prime Minister
Narendra Modi took accuse at the Centre and the GDP in the fourth district
(Jan-March) of 2013/14 plunged to yet one more low of 4.6 per cent.
GDP enlargement now stands at 4.7
per cent for the whole economic year 2013/14, which is a tad above the
4.5 per cent achieved in 2012/13. Thus this is the second year in a line
that the GDP expansion has been under five per cent, which actually calls for vital
exploit on the attention rates' front to urge increase.
The previous Congress-led UPA
government had differed with the RBI on many occasions on growth-inflation dynamics , but it never crossed
its limits to oblige its views on the RBI.
Will the BJP-led Narendra Modi government be any different ?
There are in fact no differences
between North Block and the RBI on supporting expansion. One of the mandates of
the RBI is to hold expansion and service, the other two being price rises
control and monetary solidity in the (banking) system. The RBI takes its consent
of price permanence very fatally as it believes that a low and firm rise rate
is a requirement for achieving sustainable long term escalation in the wealth.
Over the past many years, price
rises has been averaging over 10 per cent. purchaser Price directory inflation
ended at 8.59 per cent in April this year. One of the big contributors to
inflation today has been the spiralling food prices. Governor Rajan has set a aim
for the RBI to carry downward the CPI down to eight per cent by January 2015,
i.e. within just six to seven months and six per cent by January 2016.
In outlook of the high price rises
rate, the RBI Governor, who met Narendra Modi as well as Finance Minister Arun
Jaitley during the past week, is probable to keep the standard notice rates unmovable
at eight per cent.
Rajan will also look out for new
government's initiatives on the supply side , particularly growing food manufacture
, civilizing output and competence and cutting down wastages. In addition
, the first Union Budget 2014-15 of the new government will be nominated in
parliament next month , which would also supply a peek into government's
resolve to cut monetary scarcity and also subsidies.
As any economist would tell you that a continued higher price rises has negative implications for the family money. As the money supply increases, the prices of goods rises considerably. This makes exports mutually respectful, while at the same time encourages cheaper imports into the country. This inequity puts force on the currency. So Rajan's worry is also on the deal deficit or the current account deficit side, if the inflation persists for long.
Last but not the least, continual high price rises eats into the savings of households, which impacts savings and nest egg in the long run.
As any economist would tell you that a continued higher price rises has negative implications for the family money. As the money supply increases, the prices of goods rises considerably. This makes exports mutually respectful, while at the same time encourages cheaper imports into the country. This inequity puts force on the currency. So Rajan's worry is also on the deal deficit or the current account deficit side, if the inflation persists for long.
Last but not the least, continual high price rises eats into the savings of households, which impacts savings and nest egg in the long run.
Governor Rajan must have converted
the new command over the last fortnight on the longer period implications
of increase on expansion, savings and money. And the new government like the
previous one will surely respect the RBI's belief of reliability, independence
and professionalism