Expect big growth policy shots in 2015

  • Gaurav Choudhury, Hindustan Times
  • Updated: Dec 30, 2014 22:51 IST

It is sometimes tempting to draw comparisons between the playground, the government secretariat, and the boardroom.

In a cricket match, the toss (assuming that the match is not fixed and the coin is unbiased) plays a significant role in determining the eventual outcome.

Ditto for the weather and the pitch.

The world of business and economy, pretty much like cricket, is influenced by a host of random events. This was particularly true for 2014.

Indeed, more so for India. Lok Sabha elections, monsoon rains, political uncertainties in West Asia, oil prices, the rupee’s movements, and the US’s policy stance: all were events of chance that left their mark on Asia’s third largest economy.

The trends and patterns in these events, in turn, guided policy moves and boardroom decisions.

In January 2014, India’s retail inflation — a measure of actual changes in shop-end prices — was hovering around 10%. So, Reserve Bank of India (RBI) governor Raghuram Rajan raised the repo rate — the rate at which banks borrow from RBI — to 8%.

The logic: taming inflation was non-negotiable. To achieve that it was important to stymie demand and raise the cost of borrowing.

Twelve months hence retail inflation has fallen below 5% and wholesale inflation — a marker of how costly things have become at mandis and at factory gates — have hit 0%. Yet, Rajan has kept interest rates as high as it was in January.

The reason: one can never be too sure of which way the price curve will turn. Besides, one needs to closely follow the path of capital flight once US Fed chief Janet Yellen finally decides to raise interest rates. To draw a cricket analogy, the pitch was somewhat similar to a fifth-day wicket of a test match with unpredictable bounce and turn.

If anything, 2014 will go down as the year when the RBI governor refused to lower the guard despite constant cries, and sometimes scathing criticism, from business
leaders and Parliamentarians, to lower borrowing costs.

Their argument: high borrowing costs have stalled investment, necessary to add jobs and income.

Rajan’s argument: Sustained high growth cannot come without low and stable inflation.

So far, Rajan has stood his ground, a stand that has also reinforced RBI’s position as a credible and a fiercely autonomous monetary authority.

In an atmosphere dominated by so many known and unknown unknowns, ushering in the promised “aachhe din” is more complex than catchy alliterations.

Even landslide poll victories don’t make things easier. Prime Minister Narendra Modi and his government soon realised this truism. Seven months into its term, the government eventually decided to push through reforms through executive decree — ordinances.

The jury is still out on whether ordinances are the best option, but it does demonstrate the government’s intent to walk the talk on critical reforms in insurance, coal block allocation and easing of land rules.

What has also stood out is the new government’s decision-making speed and its willingness to question the status quo. The decision to scrap the planning commission, the launch of the Pradhan Mantri Jan Dhan Yojana for financial inclusion and the signature ‘Make in India’ campaign to turn the country into a manufacturing
powerhouse could be signs of this line of thinking.

Having played out the early part of its innings relatively well, one would expect the government to consolidate the policy moves in 2015.

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