Though our country has a lot of problems but the two at a very broad level can be dealt with in 2 ways fiscal solutions and monetary solutions. While monetary measures would be implemented by the RBI and in very simple terms means controlling the flow or circulation of money in the economy. When the RBI wants people to spend less money and hence in turn borrow less it would increase the interest rate and hence suck money from the market. Fiscal measures are taken by the government and may include either spending side reforms or revenue side reforms. Tax rates increase/decrease, increase/decrease in infrastructure expenditure, etc are fiscal measures.
I have a very interesting observation to make since I read a business paper and listen to all the hindi news channels (watched by a larger proportion of population as compared to the english news watching percentage of people). When I read the business paper I get an impression that the RBI in its continuous attempts to tame inflation for the last almost 1 year now has harmed growth in a country which is capital hungry. Yet the central bank has not been able to achieve in terms of controlling the inflation rate which seems to going towards double digit once again.
All estimates of RBI have failed till now in terms of the inflation rate prediction according to its policy measures. I read that our GDP estimates for the year have been revised and reduced more than once now. The rupee is weakening against the dollar and this has become a cause for concern now since it is affecting our imports and hence oil prices since we import majority of our oil requirements. And hence of course the inflation is not budging from above the 9% mark.The government has been too hesitant to open our economy to FDI unlike China. So this gives me an impression that something is seriously going wrong in our economy.
All estimates of RBI have failed till now in terms of the inflation rate prediction according to its policy measures. I read that our GDP estimates for the year have been revised and reduced more than once now. The rupee is weakening against the dollar and this has become a cause for concern now since it is affecting our imports and hence oil prices since we import majority of our oil requirements. And hence of course the inflation is not budging from above the 9% mark.The government has been too hesitant to open our economy to FDI unlike China. So this gives me an impression that something is seriously going wrong in our economy.
On the other when I listen to the news on TV which almost reflects what comes in the papers I get a very different impression about what is happening in our country. There are no talks about our GDP, never do they talk about our indrustrial output going down. I have never seen a news byte on the rupee weakening in the global economy. Never do they tell me that why has RBI gone for a rate hike and instead blame the government for increasing home loan and car loan rates. Never do they talk about how corrupt the PDS is. I never get a picture of how the Indian economy is fairing wrt other economies in the world. More than 50% educated people in this country would not know what GDP/FDI/FII is, what the subprime crisis were and how was India affected by the recession, what is happening in Europe, what all countries does India export to. They seem to be over full with news bytes like the 24 hour live coverage of the Anna Hazare fast. While that is important and I am not denying the fact we should be aware about whats happening in our country but all im trying to say is that there is more to India beyond politics, bomb blasts and corruption. We are also a part of the global economy and we have life beyond Pakistan! We are one of the major exporters to a lot of countries and we are the second largest developing economy in the world.
I feel that there is a huge disconnect between the monetary policy and fiscal policy measures in India. The government thinks that it is the responsiblity of RBI to tame inflation ignoring the fact that there are major reforms required on the supply side. Because our finance minister is too busy solving corruption problems in India let the fiscal deficit miss its target for this year, because there is always a next chance(year)!
PS: I got to know about the position of India as part of the global economy only after I started reading Mint.
