But some time I hate (including myself) completely people who talk about free banking, choice of currency, etc. Though, there is real sense in arguing all those things and of course few are there to listen and virtually none are there to question seriously as F A Hayek did. So hope is the weapon to reply on future that something will change.
OK let’s see T C A’s gorilla economics.
- “One sympathises with the RBI, though. It has to divert attention from the gorilla that walked into its drawing room and is sitting there on the sofa, quietly smoking a cigar. This has made the RBI twitter nervously in dulcet tones about inconsequential things. So the document is full of such civilised chatter.
- But chatter has never made gorillas go away. The fact therefore remains: the Government intends to borrow a massive Rs 4.5 lakh crore. The RBI says it can manage this gorilla. Perhaps it can. But for the moment, it is in a sweat.
- This is because it knows, better than anyone else, that the consequence is going to be inflation in consumer prices, even if not in the whole-sale price index, which is like those pacifiers given to babies to fool them. Show me an economic agent who acts on the basis of the WPI and I will show you a fool. The reason why we will have massive food price inflation is simple: the Government wants to borrow and spend a lot of money in the rural sector, where the votes are. But this expenditure will lead to a lot of holes being dug, not an increase in grain output.
- REGA alone has ensured that those who used to eat one meal now eat one-and-half. That may make moral and political sense but it does not increase grain output. Imagine what will happen when even more money (demand) gets into the system without an increase in supply of grains, and perhaps even a decline because of the bad monsoon.
- The RBI also thinks that interest rates can be brought down further. But lower rates are not the point in the current context.”
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