Press statement issued by BJP National Spokesperson, Smt. Nirmala Sitharaman
The Reserve Bank of India's decision today to leave interest rates unchanged demonstrates the complete disconnect between the RBI and the Government.
RBI is autonomous and independent. The BJP respects and understands this. But this doesn't imply absence of consultation. If consultations had taken place their decision today only highlights the disconnect.
Only a few days ago the Finance Minister of the country said in Mumbai, "I am confident the RBI will adjust the monetary policy, as we are adjusting fiscal policy."
Again, the Planning Commission's Deputy Chairman, Shri Montek Singh Ahluwalia and the Government's Chief Economic Advisor, Shri Kaushik Basu also had earlier called for "pro-growth and out-of-the-box measures from the RBI.
Apparently, they were blissfully unaware of the RBI's position. This doesn't augur well for the country.
The RBI has cited : (i) External Factors, (ii) Domestic Development and (iii) Inflationary Risks as the reason for continuing the status-quo.
External Factors : Even the PM, Dr. Manmohan Singh has expressed his concerns about the Eurozone issues. This government has always maintained that their policies have protected the Indian economy from global financial melt down. Even now, the Greeks have voted in favour of a bail-out package and moving optimistically forward.
Government of India's overemphasis on the Eurozone in general and on Greece in particular seems misplaced. Government of India is only seeking an alibi in referring to them and to divert the attention of the people from its failures.
If the RBI has pointed out inflationary risks as a reason to maintain the interest rate and CRR status-quo it is completely understandable.
Inflationary Risks : The BJP observes that despite 13 increases of interest rates in the last one and a half years inflation has remained adamantly high. In May, this year, headline inflation (WPI) rose to 7.55% Food inflation has only been increasing except for a brief and marginal drop. This is largely due to unaddressed supply side problems. The government has completely failed on this. This has been compounded by the petrol price hike at a stoke by Rs. 7.50/-.
Government of India's failure to manage the fiscal deficit are now hurting all of us. The promise made in 2011 for a blue print in line with the Fiscal Responsibility & Budget Management (FRBM) is yet to be drawn. The deteriorating government finances and the market borrowings are worrying.
Domestic developments : Domestic developments also another reason quoted by the RBI can be listed as the falling rupee, the current account deficit of 4% of GDP in 2012 (2% in 2011) fall in May 2012 of exports by over 3%, April IIP figure touching 0.2% and So on Predictions about a not-so-good monsoon also keep fears of increasing inflationary pressure high.
Economists, small and medium (SMEs) market and the market-all expected a modest cut at least in the CRR for releasing more money into the system.