So here we go in circles all over again. The fact that consumer inflation in September was at a record low at 6.46 per cent, the lowest since the launch of the Consumer Price Index in January 2012, has again stirred the old debate about the policy rates. Whether RBI Governor Raghuram Rajan would heed the positive signal and pare the basic rate by at least a quarter per cent at the next round of monetary policy review remains unclear. Economists pressing for a rate-cut might feel further enthused by the salutary signal on the price front. It is notable that the central bank’s own consumer inflation target is six per cent in January 2016. In fact, the RBI target for January 2015 is eight per cent. But if the present moderation in retail prices holds, we might be there much earlier. Will the good governor then feel obliged to advance the easing of the interest rates? Rajan himself has given no hint that he is in a hurry to cut the bank rate. But he may well find it hard to ignore the intense pressure should the economy and the priceline continue to perform well. A combination of local and global factors have resulted in the current optimism. For one, the slowdown in Europe and the growing self-sufficiency of the US in the energy sector has helped moderate the crude prices. Last heard, it was quoted below $90 a barrel. This is a boon for the Indian economy, which relies on nearly seventy per cent of its POL (petroleum, oils and lubricants) needs on imports. Immediately, it takes a huge pressure off the current and fiscal deficits. Lower fuel prices also help ease pressure on the food priceline. Moreover, it releases vital funds for infrastructure development. Coupled with the sharp drop in commodity prices in the global markets, the moderation on consumer prices can be quite significant. Yet, it is unlikely that Rajan will be in a hurry to cut rates. One, he will wait for evidence that inflation has stabilized at about six per cent. Two, he still has to wait for a signal from the Fed. Though Rajan is on record saying that he is well-cushioned for the end of the US taper, what with a record foreign exchange reserves, it is unlikely he will be in a hurry to ease rates before actually seeing the impact on the ground. Besides, the need for caution on prices is further stressed by advance estimates for food production this year. Significant shortfalls in pulses, coarse cereals and oilseeds this kharif season can pressure food prices again. In sum, a rate-cut might take a number of quarterly monetary policy reviews before actually materialising.
No-go for Tharoor
The troubles of Shashi Tharoor, former Union Minister, seem unending. Just when he might have believed that the controversy over the death of his wife Sunanda Pushkar earlier this year was off the front pages, a forensic report concluding that she was poisoned has revived the whodunit. Tharoor has a serious case to answer in that regard. But whether it is the pending investigations into his wife’s death or otherwise, his reasonable response to some of the policy initiatives of the Modi Government have brought him trouble from his own party bosses. Given that we are yet to establish healthy parliamentary traditions which oblige the opposition to acknowledge any good that the government of the day might be doing, Tharoor’s complimentary words for Modi were anathema to the Congress high command. And this has caused his removal as one of the spokespersons of the party. Being negative, nay, obstructionist is how the opposition has traditionally seen its role, but if it were to praise where it was due, its opposition would certainly sound more convincing, more reasonable. Tharoor may well be motivated by factors attendant upon the ongoing investigations into Pushkar’s death, but he certainly did not go overboard in acknowledging the good work done so far by the Modi Government. A perennially cussed and foul-mouthed Mani Shankar Aiyar is assured of a permanent place in Sonia Gandhi’s parlour, but Tharoor, no less articulate but immensely more reasonable, exercising moderation in evaluating the Modi Government, must be treated like a pariah. The Congress has done itself no favour by neutralising one of its more educated members.