By Sanjay Thapa
Edited by Madhavi Roy, Senior Editor, The Indian Economist
Prime Minister Modi’s Diwali greetings this season to the public will definitely be…..’Saste Din Agaye’! India’s festive season begins on a positive note with the headline “Inflation rate dipping to a 5 year record low of 2.38 per cent for September”. After touching double digit inflation levels during the previous UPA rule, this news indeed brings much succor to the common man. After the ‘onion’ and ‘tomato’prices touched ₹80-100 a kg just a month back, the common man is likely to celebrate his Diwali with a new sparkle this time. I don’t want to sound negative, but how long will the NDA be able to sustain this food inflation – at a 33 months low — at this level with the weak monsoons this year, transient softening commodity prices in the global markets, US Fed’s reversal of QE as well as the ‘tight fist’ of the RBI governor Raghuram Rajan — will have to be seen.
RBI governor Raghuram Rajan has been tight fisted over the last one year since his takeover and has tuck to a hawkish stand over his ‘inflation-targeting’ mantra. In fact I recall, when I questioned him at the RBI, New Delhi, over this, Rajan had said, “We still have to take into account inflation even as we determine the GDP (recovery) glide path,”. Taking a cautious approach over the high inflation –low growth predicament that the Indian economy is passing through, Rajan has even faced flak for allegedly hindering recovery by not softening the interest rates which have prevented the industry from replenishing credit. With this the manufacturing growth has stumbled. For the latest period, a dip in industrial production has emerged, with it touching a 0.4 per cent dip for August even as manufacturing has registered a -1.4 per cent growth. Will the RBI now ease its monetary stand and loosen the interest rates? There has been a dismal growth in bank credit offtake and the unemployment has yet to come down. This apart, the target fiscal deficit is at 4.1 per cent this year for 2014-15 and the Union Budget’s growth at a conservative estimate of 5.4 percent. Also, the investors’ bullish sentiments in the Indian economy subsequent to Modi’s ‘Make in India’ sloganeering in Japan and later US has yet to materialize.