Surjit Bhalla is being hard on RBI on specious grounds in “RBI 1, Subbarao 0” (July 31). He is against the tightening of monetary policy. It is understandable. Given the inverse relationship between the yields and prices of bonds, there is a conflict of interest when an investment banker analyses data and makes policy recommendations. Can he cite a single instance when he advocated the raising of the interest rate? The answer will prove or disprove the hypothesis stated above. It will not need any statistical test of significance! Quite likely, the reply will be a deafening silence!
There are irrelevant comparisons and inappropriate use of statistics in the article. There is no comparison between the US and India. In the US, “core inflation” that excludes food and fuel is a matter of concern. For us, these excluded items constitute the core of the problem. There is no reference to the consumer price index in India which affects the aam admi who has to pay Rs 15 for a capsicum or Rs 2-3 for a single banana or lemon. Obviously, the author does not visit any market other than the financial one. Can we comfort the citizen with the statistics on GDP deflator or seasonalised indices? It’s what he pays that is actually relevant and important to him, not all the statistical jugglery that an analyst with an agenda can trot out. Incidentally, RBI uses multiple indicators in its analysis, and not just wholesale price indexor IIP.
The economy is awash with liquidity. I have estimated in an article elsewhere that over the last quarter century, an excess of more than Rs 30 lakh crore has been created vis-à-vis the demand for money, even making a liberal assumption about the relative income elasticity. The middle class has been priced out of the market for housing, on one hand, and vegetables and fruit, on the other, despite all the tightening measures that the central bank periodically carries out.
RBI has clearly pointed out that there is evidence to show that capacity limits are being reached. Despite all the Plans, the economy is still a hostage to the monsoon. RBI has to walk a tightrope in balancing growth with inflation. It’s the government and RBI, and not the analysts, who are answerable to the public.
A Seshan, on email
