1. Economic Advisory Council member Surjit Bhalla has a suggestion, but not for Narendra Modi

Economic Advisory Council member Surjit Bhalla has a suggestion, but not for Narendra Modi

Surjit Bhalla, the noted economist who was appointed as a member of Prime Minister Narendra Modi’s newly-formed Economic Advisory Council, has a single-point suggestion to revive the economic growth.

By: | Published: September 26, 2017 5:22 PM
Surjit Bhalla, the noted economist who was appointed as a member of Prime Minister Narendra Modi’s newly-formed Economic Advisory Council, has a single-point suggestion to revive the economic growth.

Surjit Bhalla, the noted economist who was appointed as a member of Prime Minister Narendra Modi’s newly-formed Economic Advisory Council, has a single-point suggestion to revive the economic growth and bring it back on its feet. However, that suggestion is not for the Prime Minister or the Finance Minister; it is for the Reserve Bank of India, ie, cut policy rates by 100 basis points. Surjit Bhalla argues that the only answer to a slow economy is low-interest rates

It was being anticipated that the government on Monday would announce something along the lines of a booster dose to aid the ailing economy. However, the government instead formed the EAC, and announced Saubhagya Yojana to provide electricity to all households. With the government not putting forth any economic policy in place to fix the economy, the analysts say the onus has now shifted to the Reserve Bank of India to do its part when it sits for the bi-monthly policy review next week.

Surjit Bhalla has advocated cutting rates on the back of the slow economic growth — low GDP, high inflation, equity markets at a month’s low, rupee going down, et al. He recently demonstrated how each 100 bps increase in the key policy rates in one-year eventually causes decrease in economic growth by 40 bps. “In most countries (strike that, and replace with “all countries except a unique country called India”), the above question has the same answer — look at interest rates, stupid. No matter what country, central banks and government officials have the same answer and the same policy: To increase demand (up the GDP growth rate), decrease interest rates; to decrease demand, increase interest rates,” Surjit Bhalla wrote in a strongly-worded column in the Financial Express last week.

However, the RBI is highly unlikely to cut the rates for now since it has little room from the point of view of inflation, which recently started inching up, DBS Research said in a note this morning. “The headline inflation might settle within 3.8%-4.5% range for rest of FY18, around RBI’s 4% target,” DBS said in the note.

Further, the economic stimulus could eventually end up widening the fiscal deficit, leaving RBI with even lesser room to cut rates, DBS Research said in the note. “Speculation that fiscal consolidation might be delayed or that FY18 deficit target of 3.2% of GDP might be breached, will only leave the RBI more cautious than before,” it said.

RBI, in its last policy review in August, reduced the repo rate by 0.25% to 6%, citing reduction in inflation risks. The rate cut was the first in 10 months and brought policy rates to a near 7-year low. In the same month, the retail inflation rose to a five-month high of 3.36% due to higher prices of vegetables and fruit but still remain below RBI’s 4% target.

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    Ajit Maru
    Sep 30, 2017 at 11:49 am
    Mr. Surjit Bhalla claims that ploughmen and carpenters are among the lowest skilled people in this country! I can deduce from his statement that Mr. Bhalla has never ploughed or even ed a wooden peg in a wall. India is certainly in deep trouble if the Government has such economic advisors. Every skill has a place in Skills India. Today we do not have ploughmen or carpenters and this is the reason our overall productivity is low. Even ISRO needs both though it deals with rockets.
    Reply
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      Ankur
      Oct 4, 2017 at 3:34 pm
      That is the case with him. Most of his articles in Indian Express make this point clear, what he thinks of people in the lower economic strata. His views always skip the inflation issue. Obviously, RBI has a two thronged duty- Inflation control and Growth. The whole drama revolves around their balance. Its not that governors do not know that cutting interest rate will increase growth,
      Reply
    2. Mallikarjun J Iyyer
      Sep 27, 2017 at 7:06 am
      apt advice! but all the traditional credit sources burnt which were ready at doorstep and with procedural rapt banking process and added GST cost. (cost of getting a 1-page account statement is Rs.300 Rs.54 GST ( 18 )) will the credit hungry economy be able to beef up. That brings to question the presen govt. strategy of rejig policy and reengineering processes (adminstrative) where things are measured in decreased response time like issuing of passports/visa etc. While major part of bureaucracy is hardly digital friendly while markets and commerce/industry gone digital in leaps. Still, pensioners(many invalid and aged) have to be present every year for verification in spite of self-attested documents. Officials seldom are up date with rules and taunt that today everything is fB write to ..... Face of process has changed, drudgerry remains. Aadhar loot continues for unprecendented documentation. It is required everywhere. Min.Govt. Max Compliance. Prove u r indian or else..
      Reply
      1. S
        sameer
        Sep 26, 2017 at 9:37 pm
        Modi should have chosen a younger set of people, especially people who can speak truth to power. Instead, this is another bunch of old fuddy duddies who are more likely to say what pleases the master. Sadly, after using Dr Swamy to hound out Raghuram Rajan, the former has been dumped. He should have been the man for the job in North Block, instead of a lawyer.
        Reply
        1. Anil Gupta
          Sep 26, 2017 at 8:44 pm
          In a 1965 book "Economic Myth And Reality" by Delbert A.Sneider the renowned economist had suggested that when large scale unemployment and slow groth is prevalent then the taxes shuld be either abolished or minimised.This is a sound suggestion as money that will remain in the hands of people will be utilized for more purchases spurting demand.More demand will trigger more production.ore production will require more employment.More employment will further generate income in the hands of those employed.This agin will trigger demand.The cycle will go on.This will boost economy.And that is exactly what former Harverd University economics professor Dr.Subramanian Swamy is demanding for quite some time.Take it seriously.
          Reply
          1. Mallikarjun J Iyyer
            Sep 27, 2017 at 7:07 am
            apt!
            Reply

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