Letters: Change strategy

With reference to Anup Roy's report, "Inflation leaves no room for rate cuts, says Rajan" (August 30), the Reserve Bank of India's (RBI) Annual Report for 2015-16 continues to lay stress on reining in inflationary tendencies in the economy even as achieving that remains a challenge. The projections are still at the upper limits of the RBI's objective of containing inflation at five per cent by March 2017.

Inflation, the direct function of the demand and supply situation in any economy, was six per cent in July. With the government already having set an inflation target of four to six per cent (plus or minus two per cent) for the RBI over the next five years, Raghuram Rajan once again voiced his earlier contention that the room to cut policy rates could emerge only if inflation was projected to fall further.

The report also reveals that the country's economic growth is still below the level it is capable of achieving. However, consumption demand led by a good monsoon, government wage increases as a result of the award of the Seventh Pay Commission and overall economic pick-up should help the economy register gross domestic product growth of 7.6 per cent in 2016-17, up from 7.2 per cent last year.

But that apart, considerable slack in the industrial sector continues to weigh on the outlook; the capex cycle remains weak; and subdued private investment could be one of the reasons for below-par growth last year.

This is the first time the RBI's Annual Report is being viewed as "sympathetic" towards commercial banks' inability to cut rates. This, at a time when weak corporate investment has reduced the volume of new profitable loans accompanied by stressed assets that have largely contrived the capital positions of these banks and hampered their lending to corporate houses.

Ironically, these banks have been negatively revising their deposit rates in an attempt to spruce up their balance sheets. Shouldn't the central bank have come to the timely rescue of the victims of these bank's profit-oriented policies?

As growth and inflation go hand in hand in a developing economy like India, it is imperative the central bank broadens its operational horizons by pondering over the facilitation of growth with justice. It should not persist with its stance of reigning in inflation, based on consumer price index alone.

S Kumar New Delhi

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