Last week saw Dr. Raghuram Rajan announcing his maiden RBI policy change. The markets reacted adversely towards the salient points by a fall of around 400 points. Though the fall is being looked upon more as a sentimental one than the actual policy decision, there is no denying that the markets had bigger expectations from Dr. Rajan.
POLICY MEASURES
* Lowers marginal standing facility rate by 75 bps to 9.50 per cent
* Raises repo rate (lending rate) by 25 bps to 7.50 per cent
* Reverse repo rises to 6.50 per cent.
* Cash reserve ratio (CRR) unchanged at 4.00 per cent
* Partially relaxes minimum daily cash balance requirement to 95 per cent of deposits from 99 per cent
A lot of postmortem has already been done about these measures and this article is not going to reinvent the wheel. The article will try to pose some pertinent questions- relevant or not is the prerogative of the reader.
- Food inflation is killing the nation. An agrarian economy like ours needs to have more focus and attention spent on managing and maintaining food crops and vegetables. Far from it, every year we see appalling images of wheat rotting outside warehouses or granaries for the want of storage space. The Government has neither allowed private players to enter into this space nor is it doing good enough for creating a country wide cold storage facility. Food Bill scores precedence in the year beckoning the ballot. A fast track programme with clear targets to set up nation wide modern cold storage facility is the need of the hour.
- Auto loans have become a norm of the day. Detractors will argue that the motor lobby will stand steadfast against any progress in terms of electric vehicles or better public transport but the tides of time will force them to re look, reinvent and rethink. Car loans should be regulated (SBI has taken cognizance of this and has set a minimum salary level for eligibility). A long term approach on non fuel dependent vehicles (solar or electric) should be planned with provisions for infrastructure (charging stations etc). In other countries, electric cars get subsidies for parking etc providing an impetus to move from fuel base.
- Gold has been Indians' messiah during times good and bad. The over dependence on the yellow metal is seeped in the country's history and mythology. A trend not something that Chidambaram or Rajan can change; not overnight though. We will buy gold. A better policy to ensure that the gold is not lying in private vaults but can be used as a collateral could help. More thoughts on this warrants attention.
- Reality is the next villain. In the absence of any regulation for an industry that bonds the buyers for nearly two decades of EMIs, oligopoly rules large. We are a nation who is entrenched into roti, kapda and makaan as the basic necessities of life. Given the absence of any social security cover - this is considered to be the Mecca of safe investment. Housing rates are astronomical and economics is stretching the EMIs - both tenure and value. No swift solution is anywhere in sight but the fixation of owning a house (in anticipation of price appreciation) is the norm of the day. This needs to change. If statistics state that a huge number of houses are unsold - the builders are to have significant resilience to wait. Till date I have yet to hear any real estate construction company's name as a defaulter to pay the bank loan. Do they approach banks for loans? Where do they get money from? Questions galore... alas to no answers!!!!
- Lastly, the one thing that makes all things move - FUEL. As a nation, we are used to subsidies hence making us oblivious to the actual purchase price of fuel. This is a very delicate matter for the party in rule. I will delve more into this in a different context.
Views, criticisms, comments are welcome!!!!
