Indian economy in doldrums

Want create site? Find Free WordPress Themes and plugins.

When it meets early next month, the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) will be faced with a dilemma in a situation of declining economic growth rate coexisting with rising consumer price index (CPI): to cut the interest rate or not, that will be the question. Retail inflation is now at a 16-month high of 4.62 per cent, which is well above the RBI’s target rate of 4 per cent. The Indian economy is in doldrums. The downward trend began, after fast growth until the second quarter (Q2) of FY2017, with demonetization. The resultant cash shortage halted economic activities and growth rate declined to 7.5 per cent in Q3 and 7 per cent in Q4 of FY17. The introduction of GST eight months later brought its own woes. The growth rate sank to 6 per cent in Q1 FY2018. Worldwide uncertainties consequent to US-China trade war in late 2018 engulfed the world. The Indian economy grew at a slower pace: 7 per cent in Q2, 6.6 per cent in Q3 and 5.8 per cent in Q4 of FY19. In the latest quarter, Q1 of FY2020, it grew only 5 per cent. Mounting bad loans of the public sector banks (PSBs), and frauds and scams with culprits absconding and escaping punishment due to poor handling by investigating agencies, have also reduced consumer and producer confidence.

Over the past 11 months, the RBI has been on a rate-cutting spree, reducing the policy rate by 135 basis points from 6.5 per cent to 5.15 per cent by October. With the economic outlook growing more pessimistic, a further rate cut in December looked certain until last week. Now, there are new concerns for the RBI. The disturbing news is that consumer inflation shot up to 4.62 per cent in October, exceeding the 4 per cent target rate. It was the highest in 12 months, rising from the September rate of 3.99 per cent. The CPI rose in October mainly because of food prices rising by 7.89 per cent as compared to 5.11 per cent in September. On the other hand, the wholesale price index (WPI), comprising final manufactured goods, rose only by 0.16 per cent. Thus, the final and processed agricultural and food products included in WPI are responsible for WPI inflation. That brings us to the good old debate whether the 2013 decision to switch to CPI from WPI as the target right for RBI is the correct approach for measuring inflation and taking monetary policy decisions. So, with inflation at 4.62 per cent, along with stagnation, the dilemma facing the MPC members is clear.

With surging imported pork prices due to switching on to safer sources away from countries affected by African Swine Fever, China’s consumer inflation has gone up. It exceeded the target rate of 3 per cent in October. China’s economic growth is now at its slowest in nearly three decades due to the global slowdown and the trade war with the US. It is being hotly debated whether China should raise interest rate to fight inflation or cut interest rate to boost economic growth.

Did you find apk for android? You can find new Free Android Games and apps.

Leave A Reply