For over a year, the patient has shown symptoms of a general decline of body and soul and the doctors attending — some fitfully, others obsessively — are none the wiser.

At times they notice a dip in the perennially-high temperature -- probably the outcome of a statistical bias or base effect, cynics murmur -- but it changes the mood among the doctors around the bed. Invariably, one of the specialists is inspired enough to make a foolhardy prognosis of a fall in inflation, the high fever, beg your pardon, three quarters hence.

The condition judging by the news emanating from the bedside, is indicative of a manic depressive; up one month, down the next, though it could be that year-on-year base effect thing. No one knows how the patient has come to this pass; just a couple of years ago, he seemed in fine fettle.

News for the outside

In the meantime, the Prime Mentor addresses the nation or sections of it with commonplace words, whose effect is increasingly alien, hyper-real, maybe surreal or un-real.

Here he is at the recently-concluded Pravasi Bharatiya Divas talking of the ‘India Growth Story’— of engaging an Indian Diaspora that could not pack its bag fast enough to flee enervating poverty, parched opportunities and choking red tapes to promised lands and second-class citizenship, returning every year to bestow its glamorous presence as the Prime Minister will, in turn, confer upon it a legitimacy of nationhood it is least interested in.

News from a bed

Back in the room of specialists and the Indian patient, the news remains sombre despite the occasional tidings of falling inflation; oops! high fever. Here’s the good news: In December headline inflation fell to 7.8 per cent — for the first time in three years! That has spurred the specialists — call them policy planners and media experts for the moment — to action. They instantly turn to the Reserve Bank of India demanding a strong palliative for a patient whose temperature is returning to normal.

The message is loud and clear to Mint Street: Cut interest rates.

But here’s the bad news. Retail inflation (for December) hasn’t really fallen.

Prices of those essentials that India’s policymakers think an increasing number of middle-classes have begun to love — those articles whose increasing consumption signify upward mobility — have not yet fallen. Consider milk at 8.24 per cent; eggs and fish 11.64 per cent; pulses 13.46 per cent, oil 16 per cent and (horror of horrors!) vegetables at 25.71 per cent!

But the doctors of spin are not worried. What this means is that more Indians are eating well! Inflation has become an upper middle-class affliction; no longer does it blight the life of the poor.

With such high rates of inflation (not headline, but one that pinches), will the central bank still want to reduce interest rates?

Will cheaper money not add to inflationary tendencies that may have just got a shot in the arm with FMCG manufacturers spiking prices in December? Come to think of it, who is asking for such medication?

Everyone loves cheap money

Middle-class consumers : Those affected by rising prices of vegetables would certainly want some stress-breakers.

They think they know that the only spot of relief can come from lower retail rates that will enable them to buy that second home in fancy complexes with names like Euthania. They believe that unless the country gets Walmart in every town, prices of sun-dried tomatoes will not drop because of those middlemen. The government is doing all it can to push that FDI-in-retail rescue mission through, isn’t it? So the RBI can and should help, shouldn’t it?

Second, the whole gamut of consumer goods manufacturers who depend on loan-related sales and realty firms and land bank owners would want the RBI to give ‘affordable’ housing and urbanisation through townships a leg-up.

Third, manufacturers across the real economy — almost everyone connected to the CII, Assocham and FICCI — who think that the best way to kick-start their investments in new capacities is to have the RBI drop interest rates.

Will a drop work?

Here’s a thought. Assume the RBI did, against its better wisdom, bow to the clamour for cheaper money, and forget about inflation for some quarters. Assume the North Block did get its way and Governor D. Subbarao did the needful.

Would growth revive? Would the patient sit up in bed and start jogging around the block?

Not likely. Interest rates in the US and Europe are at historic lows and, yet, growth slithers along the floor in North America and is contracting in some parts of Europe.

Some might say that austerity measures queer the pitch, but that should not hold because cheap and abundant money should kick-start small businesses, income-generation possibilities, right? And yet interest rates do not seem to work as counter-cyclical measures.

If they have not worked in economies with low levels of structural bottlenecks, how will they work here other than to encourage rent-seeking opportunities and speculation?

The idea that cheap money for consumables will get the economy going will not work because what the economy needs to get the cycle of hope cranking up are robust investments. Policymakers may say that India is no longer capital-starved.

Companies have funds no doubt, but they lack the urge or inclination to invest because the overall environment is not conducive to healthy growth.

The whole thing is that…

Some would say corruption is the cause. But that is a symptom of an even greater malaise in governance:

The compulsion to get rich quick, to achieve growth at any cost even if it subverts democratic processes and mechanisms; the growing impatience with regulatory frameworks that are viewed as inhibitors to growth, the inability to distance the practice of regulation from its intrinsic need, the incapacity for ‘reforms’ that can match practice to need.

Quick-fixes, short-cuts can get you off the cliff edge. In the meantime, the policymaker can fool some of the people some of the time to be sure, but he can fool himself all the time.

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