What is ‘aam aadmi' to make of RBI's gambit?

I am puzzled no end at the way the entire spectrum of economic players and the media in India and abroad have gone ga-ga over what the Reserve Bank of India (RBI) has come up with on April 17. It is given the grandiloquent name of ‘annual monetary policy', but shorn of all frills, it is nothing more than a gamble.

For the RBI has only an extremely limited choice of four gambits: The statutory liquidity ratio (SLR), the cash reserve ratio (CRR), and the repo and reverse repo rates. Shuffling them with varying percentages is usually accompanied by an erudite exposition of the rationale by the Governor dishing out predictions and promises of various kinds.

This time too, it is no different. Only, the deep cut of 50 basis points in the repo, after a series of 13 hikes, has captured the imagination of RBI watchers and has raised expectations that the new move will give a push to the growth impulse, easing the inflationary pressures on the economy.

Major impediments

In this column, I am not into the merits or otherwise of the credit policy. I only want to point to a few perennial blind spots in the management of the monetary and fiscal environment by both the RBI and the Government. I call them perennial, because they have been continuing almost since Independence and have been major impediments in effectively addressing the different issues on the fiscal and monetary fronts.

The most serious of the blind spots is the fond belief that the RBI, by itself, can make good the failures and omissions of the Governments at the Centre and the States. However well-conceived its policies and regulatory measures, the RBI heavily depends on the Central and State Governments marching in step, and acting in unison, in managing the nation's finances. Unless they supplement the RBI's efforts at their end, the overall impact on the economy will continue to be erratic.

The two sides of responsible financial management are maximising the receipts by exploiting every avenue for income generation and wealth creation, and keeping to the minimum public expenditure and public debt, without squandering away resources in untargeted subsidies, freebies and other wasteful giveaways.

A corollary is enforcement of productivity of the employees of all categories so that there is commensurate return from the money spent on them. This means, as the Sixth Pay Commission had insisted as the basis for its recommendations on the raising of salaries, evolving norms of performance and getting rid of passengers and laggards.

HAIR-SPLITTING PLAY

The Central and State Governments have paid little attention to these aspects, with the result the combined revenue and fiscal deficits are threatening to go out of control.

The second blind spot is the failure on the part of both the Government and the RBI to monitor the extent to which their own pronouncements in regard to growth, inflation, availability of credit, outlays and outcomes in respect of various schemes and projects are being fulfilled.

For instance, at the time the CRR was reduced in January, it was expected to inject a liquidity of Rs.31,500 crore into the financial system. As far as the public is concerned, there is no knowing whether, and if so, what impact the lower CRR had on liquidity and how much of it was channelled in the form of credit into what sectors.

Similarly, there is plenty of hair-splitting play with figures of various types of inflation likely to prevail at various times in the future as a result of this or that policy. The people are again in the dark as to whether the figures were in line with forecasts or whether the RBI and the Finance Ministry were simply mouthing whatever came uppermost in their minds.

The RBI Governor and the Finance Minister must remember that high-flown jargon means nothing to the aam aadmi and he is not interested in learned discourses and juggling with figures. There are only two litmus tests for them to judge themselves by: Are basic necessities and amenities available to the aam aadmi at affordable prices? Is he in a position to lead his life in dignity with assured livelihood, reasonable comfort to his family and education to his children?

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