Money & Banking

Poor monsoon seen fuelling inflation

Vinson Kurian Thiruvananthapuram | Updated on March 12, 2018 Published on August 14, 2012

RBI Chief sees fall in investments a macroeconomic concern





Deficit monsoon and poor rains in parts of country could fan inflation in the country, according to Reserve Bank Governor D. Subbarao.

Delivering a lecture here hosted by the Kerala Planning Board last evening, he said that the cereal buffer stocks were reassuring.

But the country may face a crisis on the pulses and oilseeds front, if rainfall pattern is any indication.

This can raise inflation expectations as people generally tend to expect inflationary trends to feed themselves. Neither has the supply response been adequate.

On the problems facing the macroeconomy, he said that decline in investments was a major area of concern.

The historically high current account deficit (CAD) is borne out of the adverse twin (fiscal and revenue) deficit combine. Borrowings are used to meet current spending.

The government often opts for the soft option of taxing more rather than controlling spending. Sustainable gains can only flow from expenditure compression.

Here is where the quality of fiscal adjustment assumes importance. “We cannot avoid spending in must items such as defence, salaries and subsidy, for instance.”

But it is easy to cut down on capital/productive expenditure. This is why fiscal consolidation has become quintessentially a political issue.

Subbarao made a call to enforce Fiscal Responsibility and Budget Management Act. Quality of financial adjustment would help carry forward fiscal consolidation.

On capital flows, he said inflow has been too much or too little for purposes of financing CAD. They have never matched the ideal demand/supply situation. Even when the inflows were available, they have been volatile at best. So much so, the G20 meeting has had to devote itself to discussing the issue of currency wars. This is because too much flow weakens the home currency while too little does exactly the reverse. Depreciation can in turn cause instability and further outgo of capital.

> vinson.kurian@thehindu.co.in

Published on August 14, 2012

A letter from the Editor


Dear Readers,

The coronavirus crisis has changed the world completely in the last few months. All of us have been locked into our homes, economic activity has come to a near standstill. Everyone has been impacted.

Including your favourite business and financial newspaper. Our printing and distribution chains have been severely disrupted across the country, leaving readers without access to newspapers. Newspaper delivery agents have also been unable to service their customers because of multiple restrictions.

In these difficult times, we, at BusinessLine have been working continuously every day so that you are informed about all the developments – whether on the pandemic, on policy responses, or the impact on the world of business and finance. Our team has been working round the clock to keep track of developments so that you – the reader – gets accurate information and actionable insights so that you can protect your jobs, businesses, finances and investments.

We are trying our best to ensure the newspaper reaches your hands every day. We have also ensured that even if your paper is not delivered, you can access BusinessLine in the e-paper format – just as it appears in print. Our website and apps too, are updated every minute, so that you can access the information you want anywhere, anytime.

But all this comes at a heavy cost. As you are aware, the lockdowns have wiped out almost all our entire revenue stream. Sustaining our quality journalism has become extremely challenging. That we have managed so far is thanks to your support. I thank all our subscribers – print and digital – for your support.

I appeal to all or readers to help us navigate these challenging times and help sustain one of the truly independent and credible voices in the world of Indian journalism. Doing so is easy. You can help us enormously simply by subscribing to our digital or e-paper editions. We offer several affordable subscription plans for our website, which includes Portfolio, our investment advisory section that offers rich investment advice from our highly qualified, in-house Research Bureau, the only such team in the Indian newspaper industry.

A little help from you can make a huge difference to the cause of quality journalism!

Support Quality Journalism
null
This article is closed for comments.
Please Email the Editor
You have read 1 out of 3 free articles for this week. For full access, please subscribe and get unlimited access to all sections.