Subir Roy is a bit unfair to the Reserve Bank of India (RBI) in his analysis of the economy (“RBI lets everybody down,” June 20). Monetary policy has to take care of money supply in the economy. It cannot be blamed if public confidence in the economy is low. Money does not pour in just because cost of borrowing is low. It pours in if the rate of profit is higher than the cost of borrowing. The current state of the economy does not ensure confidence in the market. There is no serious attempt to regulate the fiscal deficit. Most states are busy showering election freebies without any worthwhile programme to refill the state kitty. Neither the Centre nor states have a plan of fiscal management, let alone executing it. Monetary policy cannot cure this fiscal illness.
Add to this the dilemma in the land policy that is turning out to be a major deterrent to investment. The poor quality of land records and lack of clear titles, resulting in large number of courts cases, restrain the private sector’s ability to purchase land. Needless to say, without infrastructure, there can be no industry or employment generation.
Even with the inflationary situation, which is regarded as a boon for suppliers if the market is buoyant, some major public sector undertakings are sitting pretty on surplus cash. The central government should direct these units to either invest it or given it back to government. Hence, it is not only the cost of borrowing that is limiting growth. If the industry has surplus fund, it can bypass restrictive monetary control. With such serious non-monetary bottlenecks spoiling the investment climate, a cut in interest rates would have only fuelled inflation without leading to economic growth.
Shipra Maitra Noida
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