Even as we are in the midst of a ‘festival quarter’, expectations are running high. As the “will it or won’t it” mystery occupies the minds of everybody, the God of monetary policy must be intensely debating internally the “should I or should I not question”. Indeed, the Reserve Bank of India finds itself in an awkwardly unenviable position. Undoubtedly, the pressure is mounting on RBI from multiple quarters to pare the key policy rates.

Reform initiatives

Given the fast evolving environment, it is easy to suggest that the apex bank should be on the same page with the political establishment. It is, however, a different matter that fiscal bosses have largely been responsible for pushing the RBI to play the reluctant villain.

Having been immersed in a series of allegations involving one scam after the other, the United Progressive Alliance II Government at the Centre finally re-gathered itself to unleash a series of reform initiatives. Diesel price hike, letting FDI (foreign direct investment) in multi-brand retail and airlines, raising the FDI cap in insurance and pension sectors et al. The moot point, however, is: Are these measures sufficient enough for the central banker to give in on the rate front? With inflation remaining outside the comfort zone, the job is anything but easy for the RBI. Often times in the past, the RBI boss has lamented on the quality of data available for decision-making. To add to his discomfort, there is still a large portion of the economy operating comfortably outside the regulatory framework. These two factors — read in tandem — could impact negatively the efficacy of any policy initiative, especially of the monetary ones.

Given this, it is logically not incorrect to appreciate the predicament of a silent class, which feels a sense of hurt deliberately imposed on it. If the high interest rate regime has hurt business enterprises across the canvass, it has pushed the common man into the realm of a mere dream world. Will costlier bank money not lead to resurrection of blade financiers of yester-year with attendant adverse fall-outs on the society as a whole? The existing system doesn’t seem to provide a common man either a sense of safety or feeling of assurance. Funnily, the entire debate on the interest rate has focussed mainly on how the costly money is hurting India Inc! The supply side, unfortunately, has been ignored for long. With the Central Government living by the day, and jumping from one crisis to another, the focus clearly has been more on political management. In the process, economic management has got less attention and time. If proof were required, it could be found in good measure in the deepening power crisis, poor infrastructure and rising prices. A man on the street is legitimately angry, caught as he is between a strident central banker and a slipping fiscal administration. Will the apex bank take cognizance of this as it sits again to review the economy on Tuesday?

jagannathan.kt@thehindu.co.in

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