The economy needs a push, substantial part of which should come from the Government, which in turn needs the RBI to play along.

There is going to be a lot of brouhaha about Finance Minister P. Chidambaram formally announcing, among other things, that steps will be taken to bring down interest rates. Consultations between the minister and the RBI is one thing, but openly including the desired stance from the RBI as a sort of given is another.

The most relevant question today is not whether the Government is disrespecting the RBI’s autonomy or if the RBI should be allowed to take its own considered assessment of the macroeconomic situation — global or domestic — and act as it alone deems fit, in isolation.

There are other important questions such as the efficacy of the RBI’s policy stance so far. For example, the rate rising cycle was steep and fast and in a sense inflation has been stubborn and not really responded to the policy actions. And to believe that a more aggressive rate cutting would fuel inflation immensely seems to be farfetched.

The RBI cannot stand aloof. It has to get real. Globally, central bankers are going all out to take unconventional and aggressive measures, or are at least making such noises.

Domestically, the Government, which can without any doubt be ‘credited’ for creating the mess that we are in, is at a point when it has to start acting. The economy needs a push, substantial part of which should come from the Government, which in turn needs the RBI to play along.

Co-ordinated action

Therefore, if what is required is a co-ordinated set of actions along with the Government, then the RBI must not hesitate to do the needful.

Inflation no doubt is a bad thing. But inflation without growth is worse. Either we agree that our economy today needs some push to regain its confidence or we don’t. And if we do, we may need some bold moves.

(The author is a management consultant. The views are personal.)

(This article was published on August 7, 2012)
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