Thanks to the formation of Monetary Policy Committee, Mr Urjit Patel does not have the loneliest job in India as remarked by our former RBI governor and ex Prime Minister; but there is definitely a lonely group of five. Now that the world stimulus party is getting over and commodity cycle is getting reversed or stabilized, Indian economy is bound to get impacted by its side effects as it had benefitted through the easy money policy era.
The Foreign Portfolio Investors had seen it coming with the OPEC resolute on stabilizing crude and India being one of the largest oil importers, would have to pay the price for the world moving back to growth. Rising Imports by US & China, Europe witnessing its highest manufacturing PMI over the past six years, economic expansion in Brazil & Russia in the last 2-3 quarters, Middle East patiently moving towards its well chartered plan and even South Africa is out of recession. So does it mean that India has a negative co-relation with the rest of the world? Though inflation parameters might fit in such jovial scheme of things, global growth prospects are enormously interconnected.
CPI in India averaged 11% or more in 2013. So we can appreciate the effort put in by RBI in getting us down to 3.36% by August 2017. Just a few basis points away from 4%, has made RBI extremely cautious in a rising crude and slowing growth scenario that it has extinguished for itself the safety range of 2% (+/-) around the inflation target. RBI true to its spirit did not budge in its fourth bimonthly policy and as a result Repo Rate was held at 6%, Reverse Repo at 5.75%, Marginal Standing Facility & Bank Rate at 6.25% with a neutral stance. The central bank has cautioned against fiscal stimulus and revised real GVA growth for FY17-18 to 6.7% from 7.3%.
Stock markets still unperturbed are betting on the double digit growth in September for commercial vehicles extinguishing fears of GST, PMI Manufacturing sustained at 51.20 and improving core sector growth. So should the RBI be blamed for being over cautious and not giving growth the required fillip at this sensitive juncture.
We should not forget that the Indian economy functions in an uncertain geo-political maze where self centered economic & political policies create economic upheavals & financial instruments are the new means of mass destruction. In this backdrop, Indian economy reeling under NPA mess, leveraged corporate and excess unutilized capacity in manufacturing, cannot afford even a minor mishap. So what we have is actually what we need, A Vigilant Central Bank, for an emerging Indian economy.
Legendary investor George Soros had once said, “I see tremendous imbalance in the world. A very uneven playing field, which has gotten tilted very badly. I consider it unstable. At the same time, I don't exactly see what is going to reverse it”.