Back-to-back cuts to spur growth

The Monetary Policy Committee of the RBI on Wednesday cut the repo rate by 35 basis points, to make it 5.40 per cent. This is the fourth such cut in a row, the earlier three were of 25 basis points each. Now the repo rate, or the rate at which the central bank lends short-term funds to commercial banks, is the lowest in nine years. The accommodative stance is aimed at spurring growth which has been slowing down in recent months. The MPC noted that consumer inflation was within the projected parameters, well below the four percent medium-term target. It projected CPI at 3.1 percent in the second quarter and 3.5-3.7 percent in the second half of 2019-20. Since the appointment of former Finance Secretary Shaktikanta Das as the RBI Governor, it may be a mere coincidence the MPC has in every meeting recommended a repo rate cut. Not that it wasn’t called for. It was. This is justified by the liquidity crunch in the economy with key sectors in the grip of slowdown. However, it remains unclear whether back-to-back rate cuts would incentivize growth since a host of other factors drag down the economy. The global slowdown, especially due to the on-going US-China trade war -- in the latest move the US declared China a currency manipulator after yuan was further devalued against the dollar -- is bound to impact the Indian economy adversely. So are the ongoing troubles in the European market with the EU-UK still engaged in a bitter war of words over Brexit.

But the major factors for the slowdown are domestic. Even though the adverse effects of demonetization and a haphazard GST implementation could be finally behind us, the resulting troubles of the real estate sector, a huge consumer of cement, steel and other manufactures, and a big employer of labour, show no sign of abating. The spin-off effect of the real estate sector is quite wide. A number of real estate developers have gone out of business. Those who have survived are under a mountain of debt, especially after the collapse of the ILFS and its offshoots. Besides, the complaint is that after the recent troubles of banks due to inordinately high bad loans on their books they are generally reluctant to lend to the corporate sector. Without doubt, the corporate sector evokes no trust after it defaulted on repayment of loans on such a huge scale, but without fresh credit it will be hard to rev up the economic engine. Indeed, now the defaults crisis might be developing in the small and medium sector, thanks to the renewed emphasis by the Prime Minister on lending to this labour-intensive sector. Above all, the factor that discouraged fresh investment and credit growth was the maiden budget of Nirmala Seetharaman. It did nothing to spur growth. On the contrary, it caused a flight of foreign funds from the markets. Hopefully, the Finance Minister has begun a round of fresh talks with the stakeholders, meeting in groups people from business and industry. Even the grievances of the foreign investors have found sympathetic ears in the government after the shock of the budget. Unless some of the retrograde decisions are reversed, it will be hard to boost the growth sentiment.

India lost a natural leader

Sixty-seven is young these days for anyone to die. Sushma Swaraj was suffering from a series of ailments, especially due to her chronic problems with diabetes leading to a kidney transplant a couple of years ago. Despite the best available medical help she did not survive a massive heart attack on Tuesday evening. The former External Affairs Minister stood out as an orator even in the BJP large stable of engaging public speakers. She was excellent in Hindi, though she was competent in English as well. Groomed by L K Advani in the 80s and 90s as one of the general secretaries -- the others being the late Pramod Mahajan, Govind Acharya and Arun Jaitley -- Swaraj was a natural in the role of Foreign Minister in the Modi 1.0. As the public face of the MEA, while Modi executed real foreign policy, she helped many an NRI in distress to get over the lack of a passport here, the Indian visa there, or, often, interceding on behalf of them with foreign governments. She opted out of the electoral politics due to ill health on the eve of the last Lok Sabha poll. At one time, she had aspired to be named the BJP’s prime ministerial candidate, but Modi pipped her to the position. As the Leader of the Opposition in the Lok Sabha she was effective. But one of her best interventions came when she spoke for the 13-day Vajpayee Government and that speech in the Lok Sabha was telecast live, earning her goodwill far and wide. Her funeral with full state honours on Wednesday afternoon was a richly deserved tribute to her qualities and friendships across the entire political spectrum.

- S Sadanand

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