After clearly stating that the interest rate cycle had peaked, the Reserve Bank of India (RBI) has been tight-lipped about timing a trend reversal. The official stand has been one of wait-and-watch, particularly on the inflation front. There are good enough reasons for RBI to maintain that stance because inflation still remains a concern; whatever decline we are witnessing in food prices is on account of the base effect. Noises are still being raised that overall inflation numbers are going remain in the problem zone, especially, given the fact that the rupee has declined in the past couple of weeks. So, it is argued that RBI should be in no hurry to slash rates. This, we believe, is a fallacious argument. Growth numbers have been falling for some time now, and the prime minister’s latest forecast that GDP growth will come down to 7 per cent from 8.5 per cent a year ago is cause for serious concern. Worse, estimates by some research houses indicate a free fall to even below the 6 per cent mark; in the past, their predictions have often been more accurate than the government’s projections. The results season kicking off this week does not indicate healthy tidings. In addition to infrastructure firms, which have been lagging for a long time now, companies focused on domestic consumption are likely to witness contraction this time around. We are of the opinion that RBI should take urgent note of the fact that growth is slowing at a much faster clip than most policymakers had anticipated. If corrective measures are not initiated now, then things are going to turn worse from here on, making economic revival a difficult task to manage. Rather than follow textbook remedies that argue against administering interest rate cuts till inflation is tamed over a consistently long and stable period of time, it would make sense for the central bank to adopt out-of-the-box prescriptions at its forthcoming review without waiting for number signals on the health of the economy. Though, at first instance, that may seem a bitter pill to swallow on part of RBI, considering that it continued to raise rates till as late as October, if that is what is required to save the economy, so be it. In our issue dated Monday, FC published an exhaustive report on how retailers were being forced into discount sales in peak season. This is indication that, on the ground, the economic slowdown has started taking roots and it is time for policymakers to act. Peak festival sales have traditionally been high in north India, and much of the rest of the country, in winter, adding significantly to corporate bottom lines. Weak sales this season by both large-format corporate retailers and medium-sized companies will soon reflect in government numbers, dragging down an entire chain of small suppliers and vendors. This makes it imperative on part of policymakers to create a robust economic climate that can revive demand. Already, the economy has lost a valuable year to tight money policy measures adopted by the central bank in deciding between growth and high prices. Also, the government seems trapped in a state of policy paralysis, with economic decision making grinding to a halt. If timely measures are not initiated by the central bank to kick-start the economy and get production and employment opportunities moving, yet another year may be lost in the wait-and-watch game in a year that is globally predicted to be worse than the year just gone by. The time to act is now.
FC
