India's macro Policy needs Correction

FOR IMMEDIATE RELEASE
Palakkad, Kerala, India, Republic of (Free-Press-Release.com) November 18, 2011 --

India was on a high growth trajectory until 2008. Thereafter, the double digit growth was tilting to lower percentile.But, persistent inflation, both general and food, which had exceeded 9% flat for 11 straight months is appalling enough to stymie growth. Inflation will stifle Growth . Appreciating Dollar ($) is probably adding and continue to add, to Indian economies woes. Government seems to opt for easy options. Raising interest rates, 13 times since 18 months, to arrest the momentum of inflation, but the result was a big Zero. Inflation grows unabated. This has been across the board raising the cost of debt. The direct result of such a move, rather on a continuous pitch is that, there has been slow down in the output of goods and services, while not necessarily driving demand.

For diminishing Credit allowed by Banks, the private sector has put off and shelved their expansion for atleast a lustrum. This has been causing unease in the market and the Foreign Investment Investors are little shy to invest in an emerging economy where expansion has come to a halt, atleast temporarily. They have off-loaded their stocks, sold their stakes and are repatriating. This has been responsible for putting pressure on the Rupee, even though Indian exports has been boyanant with a bonanza growth of 25% to achieve $ 250 billion plus. The increasing Dollar vis-a-vis Rupee has pushed import costs high.

The Economic landscape presents a picture of slippery slopes of a vicious stagflationcycle, which apparently appears very difficult to break.

In a developing economy like India, money supply grows faster than the Economic Growth. But, thanks to the RBI Policy, with the money supply in constraint, growth becomes a question mark. Drop in money supply is disproportionately greater than the slow down. But inflation shows no sign of abating. There is something wrong. RBI should realize that money supply is not the villain that is driving inflation but the parallel economy of black money injected into the system . Black money flow into our system is a curse that has tinkered with our growth. RBI and Government need to attack the virus instead of being like Alice in the Blunderland!

economy     growth     increased cost of debt     inflation     monetary policy     money supply     parallel economy     stagflation