Waiting for gst

Waiting for gst

THE RBI has chosen broadly to maintain the status quo (यथा स्थिति) despite there being many strong reasons for a repo rate cut — low inflation, a slower-than-expected GDP growth, little possibility of oil prices spiralling (उत्तरोत्तर बढ़ना) beyond the comfort zone, a normal monsoon forecast auguring (पूर्वसूचना देना) well for the country’s beleaguered (तंग/कष्टमय) farm sector and the government pitching for a reduction in the cost of corporate borrowings to perk up (आकर्षक बनाना) the sluggish (मंद/निष्क्रिय) investment sentiment. If the RBI Governor-led Monetary Policy Committee has not yielded to pressure from Finance Minister Arun Jaitley for lowering interest rates, it is not as much an assertion of the RBI autonomy as an acknowledgment of a systemic compulsion.
There is already excessive liquidity in the system — estimated at more than 60 billion. After demonetisation banks have more cash at hand than they know where to park it profitably. The demand from the corporate sector is negligible. Some of the major corporate houses are struggling to come out of the existing loan burden. As the last quarter corporate results indicate, the economic scenario inside and outside the country is not rewarding enough. With bad loans weighing them down, government banks too are hesitant in making risky advances. As a result, private investment is not happening and, as Dr Manmohan Singh has pointed out, the economy is running on one engine — that of public spending. The government view — also shared by some private experts — is that the harm done by demonetisation is temporary and the economy would soon bounce back.
In its last monetary policy review in April, the Reserve Bank had moved its policy stance from “accommodative” to “neutral” and left its benchmark (मानदंड) lending rate unchanged for the third consecutive time at 6.25 per cent due to an “upside risk to inflation”. That risk has abated (कम होना/शांत होना) but there is another significant reason for the RBI’s wait-and-watch approach. The central bank would like to assess the impact of the GST rollout, scheduled in July, on inflation before taking a fresh call on interest rates. That is reasonable enough, even as critics call RBI Governor Urjit Patel more hawkish (तेजतर्रार/आक्रामक) than his predecessor (पूर्ववर्ती) , Raghuram Rajan.