ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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In Small Doses

The Reserve Bank of India’s monetary policy announcement for the first half of this fiscal year is very much on the expected lines. There are no dramatic pronouncements on the macroeconomic front – the governor had earlier already ruled out any reduction in the Bank rate or the cash reserve ratio – no big bang reforms, no new announcements on the recent stock market/banking fraud. Nothing to unnerve the markets or unsettle the economy. Instead the policy carries forward the overall reform agenda – albeit in fits and starts – even as it tries to plug the loopholes in the system that have come to light in the context of the latest scam. However, market observers looking to find some admission of regulatory lapse on the part of the RBI are likely to be disappointed. Apart from a brief mention that the policy is being “presented at a time when serious lacunae have emerged in the functioning of certain segments of the financial system”, there is no elaboration of whether the central bank’s own supervisory lapses – of the clearing house or of urban cooperative banks/ commercial banks – contributed to the market operators’ shenanigans.

The Reserve Bank of India's monetary policy announcement for the first half of this fiscal year is very much on the expected lines. There are no dramatic pronouncements on the macroeconomic front – the governor had earlier already ruled out any reduction in the Bank rate or the cash reserve ratio – no big bang reforms, no new announcements on the recent stock market/banking fraud. Nothing to unnerve the markets or unsettle the economy. Instead the policy carries forward the overall reform agenda – albeit in fits and starts – even as it tries to plug the loopholes in the system that have come to light in the context of the latest scam. However, market observers looking to find some admission of regulatory lapse on the part of the RBI are likely to be disappointed. Apart from a brief mention that the policy is being "presented at a time when serious lacunae have emerged in the functioning of certain segments of the financial system", there is no elaboration of whether the central bank's own supervisory lapses – of the clearing house or of urban cooperative banks/commercial banks – contributed to the market operators' shenanigans.

The good thing is that on the macroeconomic front the RBI continues to be reasonably optimistic. Its estimate of 6-6.5 per cent GDP growth in real terms is encouraging at a time when anecdotal evidence, business confidence surveys and the latest statistical releases all seem to point to a much slower rate of growth. At 6-6.5 per cent India will still be one of the fastest growing economies in the world in a year when the US slow down is expected to drag global rates of growth by an average of 1-1.5 per cent. Of course, like a true central banker, governor Jalan has hedged himself well. Consequently, all this is contingent on a number of assumptions – "revival of the industrial sector from the next quarter, reasonable monsoon and good performance on the export front". Nonetheless, it must be deemed significant that the central bank seems to regard the latest IIP figures which show a 0.6 per cent growth in industrial output in February more as an aberration than as part of a long-term trend.

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