Wednesday, June 15, 2016

Not just Oil and Monsoon, Rajan and Modi too have done their bit too

We say thanks to low oil and not a bad monsoon for keeping inflation low. Many think that because of this situation Rajan and Modi are getting the credit. But I think they too have done their bit.
Absence of large scale corruption: First with Modi, lower price helped his Govt to get away with fuel subsidy and run the show with a lower fiscal deficit. True but there are other things to consider. Remember the days of UPA-2. None of the big scams like 2G or Coalgate which happened those days are not happening or at least so far. Larger scale corruption is not seen or seems to be cooking. That avoids the flow of balck money into the markets, especially the real estate. So real estate prices are in a check along with inflation. Avoiding the temptation to offer welfare policies helped to curb the fiscal deficit and thereby inflation. Many of his moves like ‘Make in India’ have remained a talk but even if a little progress is made in that direction, it would reduce import load for a large domestic consuming nation of ours. Even if he does not achieve much, he is surely not draining the national resources.
Fight against crony capitalism: Rajan (Governor of RBI) has put great effort in rebooting the banking system. Earlier Public sector banks mostly helped big businessmen; they gave big ticket loans and were never tough in recollecting their dues. But now they are forced to take tough decisions. It is surely a fight against crony capitalism. Apart from that he made the decisions and regulations transparent, linked the interest rates to CPI. His communications are consistent, policy stands have become predictable. More people know about the roles and responsibilities of a central bank now than before. Even if he leaves soon, he has already put a system in place which would help decisions of RBI in his absence.
So considering these factors apart from lower oil prices and a good monsoon forecast, are surely helping inflation to remain on the borders of 5%. Modi has three more years for him but Rajan’s continuity is in in doubt. If he too gets another three years stint, expect inflation too to remain in check and interest rates low. India’s economy would be in safe hands and may do consistently well too like the people at command.
I sincerely hope this good sport dos not get spoiled any time soon.