It is not at all surprising that two important economic policy statements — the Reserve Bank of India's mid-quarter monetary policy review and the Economic Survey — both released one day ahead of the Union budget, should focus on the core concerns of the macro economy. The RBI's scheduled mid-quarter policy review was hardly the non-event it was feared it would turn out to be. A cut in interest rates was not on the cards and with no expectation of one, attention turned to the RBI's views on the economy, especially inflation, fiscal consolidation and growth. Inevitably there is an overlap between the central bank's views and the Economic Survey, although they vary in their emphasis. Both agree with the official forecast that the economy will grow by 6.9 per cent during this year. However the Survey is much more optimistic about the future, predicting a pick up in growth to 7.6 per cent in 2012-13 and 8.6 per cent the following year. These numbers do not appear very realistic. In previous years, the Survey has sometimes been embarrassingly wrong with its rosy projections. Last year, for example, the forecast was for a growth rate of 9 per cent and for the fiscal deficit to be contained within 4.1 per cent of the GDP during the current year, way off from the latest consensus estimate of 6 per cent.
In contrast, the RBI has been circumspect, pointing out that government finances have been deteriorating during 2011-12. Key deficit indicators have, by January, crossed the budget estimates for the full year. Tax revenues have been sluggish and the government's non-plan expenditure, particularly on subsidies, has gone up sharply. The slippage in the fiscal deficit has fuelled inflationary pressures, whose containment will depend upon a credible action plan for fiscal consolidation. That is an area which the budget is bound to focus on but the Survey's bland assertion that fiscal consolidation is on track needs to be supported by evidence. Again, while the Economic Survey takes note of the moderation in inflation by the end of last year, it has ignored the more recent spike caused by a spurt in food prices. In fact, the battle against inflation that has dominated policy discourse is far from over. As the RBI records, upside risks to inflation have increased. Crude oil prices remain high and the rupee has depreciated. The trade deficit has widened sharply and financing the current account deficit is proving to be a daunting task. The key take-away from the RBI report is that notwithstanding a slowdown, inflation risks remain high. This is surely something the Finance Minister will have to ponder over.
Keywords: RBI, monetary policy review, Economic Survey, inflation, Indian economy, macro economy
Our esteemed and great policy makers leave no stone unturned to fix the micro and macroeconomic problems of the nation like fiscal deficit, current account deficit, inflation and growth. I will plead them to take the help of every Indian from the President Madam Patil to the last person like me of this country by letting him know that things which one is using and act he or she is doing causes this much loss to him and the nation by publishing and monthly updating the list of 1000 things or activates done mentioning cost, subsidies, fiscal deficit, tax component current account deficit and inflation caused by these. This is one of the easiest things to do in current era of radio, TV, phones and media. Majority of the 15 crore LPG connection holding families might not be knowing that domestic lpg cylinder of Rs 400 is subsidized by Rs 400 cause fiscal deficit of same amount and causes trade deficit of Rs 850 at current international LPG prices of $ 1200 per ton. Kerosene is subsidized by Rs 32 per liter and cause foreign exchange out go of almost same amount. Majority of us do not know that solar cooker of Rs 2000 which lasts for 10 years gives 40 cylinders of LPG at RS 50 per cylinder and 600 liters of kerosene at Rs 3.33 per liter without causing any loss to oilcos, goverment, and foreign exchange. By watching the list of these 1000 items covering about 90 percent of GDP and changing every month an Indian one will adopt right thing according their merit for consumer, nation and government because loss of pocket , nation and government is also ultimately borne by the same individual.
RBI should expalin why its forcast is way out of actual. Are they playing to the tune of political masters? It is time they learn how to estimate reasonably accurate.
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