Column: In everyone’s interest

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Interest rates are difficult to pin down, since there is typically a spectrum, rather than a single number. However, one can often identify benchmark interest rates set by central banks. Websites on cross-country interest rates show that, in Europe, if one leaves out Iceland (15.0%) and Hungary (8.25%), such interest rates range between 2.5% and 5.5%. In North America, the range is between 2.25% and 3.5%. And in Asia-Pacific, the range is between 3.5% and 9.0%, with India at the higher end. The RBI website tells us the deposit rate is between 7.50% and 9.60%, while prime lending rate (PLR) is between 12.75% and 13.25%. How much is the inflation rate? The point-to-point WPI (wholesale price index) is neither here nor there, and shouldn’t be used for policy purposes. It’s a separate matter that there is hype over WPI-based inflation crossing 12%. The trend rate of inflation is no more than around 7%, substantiated by what CSO implicitly accepts as the GDP deflator. Therefore, India’s interest rates are high, both in cross-country comparisons and in terms of what real interest rates should be. In this age of globalisation and integration, the argument that India is a capital scarce country will not wash. In any event, just recently, India has been exporting capital.