With consumer price inflation stuck at about 10 per cent, it is noteworthy that the Reserve Bank of India (RBI) decided last week to print another Rs 10,000 crore of cash to buy back government securities. The RBI believes that a fiscally reprehensible government need not pay a real yield on its debts; its earnest talk of "liquidity provision" notwithstanding. As if the cash reserve ratio was the devil's tool. Any student of economics will tell you that printing money without a commensurate increase in production or productive capacity leads to inflation. It is remarkable that nowadays even double PhDs, including governors and chairmen of central banks, seem to think and act otherwise. The amount of money printed by RBI since 2008 stands at about Rs 5,50,000 crore. The RBI's own holding of gilts as a percentage of outstanding government debt exceeds that of the US Federal Reserve, according to The Economist. The press coverage around so-called "spats" between the finance ministry and RBI is nothing short of amusing, for it is a farcical attempt to cover up a damning truth; India's central bank has already lost its independence.
Rohan Soares Mumbai
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