Economic Highlights
New Delhi, 14 February 2022
Voter Fears Realistic
RBI WARNS BELT
TIGHTENING
By Shivaji Sarkar
The definition of “vikas” (development)
apparently changes as Uttar Pradesh goes to the polls, hard-pressed voters harp
on myriad problems, including junking of ten-year-old tractors, scarce jobs,
high prices, low farm MSP and even interest rates.
Interestingly enough as polling begins the Reserve
Bank of India almost agreeing to the rising prices and other uncertainties at
its monetary policy committee (MPC), lowers growth forecasts to 7.8 per cent in
2022-23, against Finance Minister’s 8 to 8.5 per cent in the bi-monthly
Monetary Policy meeting. A belt-tightening forecast! It has kept the interest
rates unchanged at a low of 4 per cent repo rate, RBI lending rate to banks,
and 3.5 per cent reverse repo rate, at which RBI borrows from banks.
Former Chief Economic Advisor Kaushik Basu
notes that growth has been decelerating. It was 8.2 per cent in 2016-17; 7.2
per cent 2017-18; 4.2 per cent 2018-19; and minus 7.3 per cent 2020-21, each
year growing less, a first since 1947.
The MPC presumes retail price inflation this
year to be at 4.5 per cent but cautions about hardening of global crude prices
on inflation. Overall it has retained its inflation projection at 5.3 per cent
and with closing at 5.7 per cent by March on account of unfavourable base
effects. However, it ignores 13 plus per cent of wholesale inflation. The US
agrees to one per cent rate rise. The RBI too could have incentivised deposits
and ensure better banking health.
The voters are not bothered about the nitty
gritty but changed their perception of development to mean whosoever they are
voting would help them grow. Almost uniformly the voters in UP say that they
are voting for vikas and further quizzed they say that they are voting
for “our own vikas” and name an opposition SP-RLD candidate. For the
other voter it means following the call of Yogi Adityanath and Prime Minister
Narendra Modi. The vikas itself has changed its political candour.
Though it signals a change, it is to be seen
how the incumbent BJP fares. The BJP as per the new manifesto is no more
contesting the poll on doubling of farmers’ income, announced in 2017 or
ensuring MSP to all, demand that the agitating farmers had harped on. But
people also are voting for temples, and communal issues though agree to be hit
by rising prices.
The contrary lines are reflecting in the lone
MPC dissenting voice of Prof Jayanth R Varma. He had disagreed with the MPC
resolution on August 20, 2021saying, “By creating the erroneous perception that
the MPC is no longer concerned about inflation and is focused exclusively on
growth, the MPC may be inadvertently aggravating the risk that inflationary
expectations will be dis-anchored. In that scenario, rising risk premia could
cause long-term rates to rise”.
The
voters may not have read it, but with their practical intuition, seem to agree
to the perception. The mood for change is there for a better living condition.
Even the main MPC discourse does not belie the perception of Varma. Governor
Shaktikant Das says that next year’s Centre’s borrowings would not be as high
as projected in the budget. It means shrinkage of borrowings, deposits,
uncertain expenses and growth. It is a bit eerie.
Consumption
is not rising. That seems to be the concern of the voters, RBI and the
government alike. The voters realise
that the economy would be shaky whatever the official rhetoric. The BJP had
overwhelmingly benefitted in UP riding on high expectation in 2017. Its manifesto
speaks of MSP but does not guarantee, and repeats payment to cane growers in 14
days as does the SP in 15 days.
One interesting aspect is that in the budget,
minorities have been given priority in allotment of PM Awas Yojana, free food
doles and increase in minority affairs allocation to Rs 5,000 crore, Rs 674
crore more than the revised estimates of Rs 4346 crore. The minority youth get
Rs 2431 crore for scholarships and skill development. And most interestingly
minorities have been given Rs 10 crore for containing population decline
despite many harping on its unusual increases. These issues are being
propagated by the Rashtriya Muslim Morcha in close interactions with minority
religious groups.
But this does not give much of reprieve to
the common man. Governor Das says that rising inflation would continue to peak
till the second half of 2022-23 “within the tolerance band of RBI providing
room for policy to remain accommodative”.
Overall, the MPC notes loss in momentum of
near-term growth even as global factors turn adverse. It assesses that owing to
Ukraine-Russia conflict, Iran-US qualm, fluid Afghanistan and uncertain Middle
East the economic situation may deteriorate. In such circumstances, expecting
improvement in domestic growth drivers is bit optimistic. These have been the
concern for lowering growth to 7.8 per cent. It expects a very high growth in
the first quarter and then gradually tapering off to 4.5 per cent in the last
quarter of 2022-23, according to Das.
Though the Indian voters need not understand
the phenomenon emerging in the distant West, it can hit India hard. Considering
it, the MPC has concern over stagnant private consumption, which has yet to
touch the pre-pandemic level. The global problem may hit India harder in tune
possibly with the pessimistic Indian voters. The World Bank warns of fragile
economy infested with daunting challenges. The world growth may be hit by the difficult
situation in the United States.
Despite tom-tomming of high growth, the US
suffers from the China syndrome. China has bought none of the $200 billion it
promised from the US under ‘phase-I’ trade deal. It can lead the US to choppy
regime impacting global economy. A global inflation and unstable US economy can
create turbulence. Everything is getting expensive in the US.
The persistent increase in international
commodity prices, surge in volatility of global financial markets and global
supply bottlenecks can exacerbate risks to the outlook, says Das. Yes, Chinese
trade moves in the Indian subcontinent may also cause difficulty.
Das says India can still recover with buoyant
rabi crop, robust exports, liquidity conditions improving credit offtake and
continued push on capital expenses and infrastructure. The hope is a bit too
high and the MPC cautions are sharper than any voter can expect. The unsaid is
grim and 2022-23 as per the MPC may not be as bright as it is trying to be
projected. Belt tightening seems imminent.---INFA
(Copyright, India
News & Feature Alliance)
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