Tags:
Journalism of Courage
There8217;s a threat now to the Indian economy, and it comes from sober professionals whom we entrust our money with. Bankers have been arguing for a hike in interest rates, the context being RBI8217;s upcoming monetary policy review. Bluntly put, a rate rise now would flatline the economy; consumer spending and industrial investment will take a hit. Corporate profit growth has slowed. A rise in the cost of capital isn8217;t what industry and India need. We may repeat the 1996 folly, when a recession followed sharp rise in rates. The finance minister, of course, knows all this. P. Chidambaram has publicly argued against rate revision. But, somehow, the impression has gained that North Block8217;s words don8217;t carry as much weight as they should. Certainly, hearing some bankers it seems the debate is over, and the FM8217;s point doesn8217;t matter so much. We know Chidambaram to be a minister who has few problems getting his views across; witness how firmly he argued for FBT against universal opposition. Then why should it appear that he8217;s not being listened to seriously when he8217;s arguing against banks wanting fatter margins?
RBI8217;s governor, Y.V. Reddy, a wise financial administrator, is not known to be gullible or one who will be swayed by bankers8217; version of populist economics. Indeed, there8217;s a larger question of monetary management here. In an open economy, currency rate manipulation and interest rate fixing can8217;t be done simultaneously. We still tend to be over-bothered about the value of the rupee and, as a result, our interest rate policy has to per force shadow that of US Federal Reserve. India shouldn8217;t and doesn8217;t need to hike interest rates if Fed does. We followed Alan Greenspan over the years. Let8217;s not follow his successor, Bob Bernanke.
