Rate cut needed
This is reference to the edit “Bigger case for RBI rate cut” (FE, September 15). Present day economics is way too skewed than it was three decades ago. We are worried over Fed increasing rates and irritated as to why RBI is delaying reduction! Monetary measures seek to increase the supply of credit and not to increase the supply of money to the economy. Central banks are not equipped to increase the level of reserves in the banking system by wishing it. They can merely create ledger money in an attempt to cajole the banking system into normalcy. For close to two years now, RBI has been unsuccessful. Social issues, such as rising income inequality and household indebtedness, are related to the rise of finance into an unprecedentedly dominant force. This is further skewed by the entire financial industry getting preferential treatment from the government—be it the massive bailouts or the right to borrow massive amounts of relatively free money from central banks. Worse, banks sit on idle cash but do not loan it out into the economy because they are worried about their balance-sheets. And this is where household savings become vital—our economy is anyway more dependent on savings than ever before.
R Narayanan, Ghaziabad
Economics sans politics
This refers to “Hike in petrol, diesel prices put off” (FE, September 17). As per this report, an hike of R1 per litre in petrol prices and R2.28 per litre in diesel prices (at the retail outlets), necessitated by the firming up of global oil rates, have been put off by the state-owned oil companies, i.e., IOC, BPCL and HPCL. The said price hike was to be announced on Wednesday as per the existing pricing practice followed by these oil marketing companies, based on the international oil prices and foreign exchange rates in the previous fortnight. But fearing adverse effects in the ensuing Bihar assembly elections, the Centre chose to ‘look the other way’ and conveniently provided us with a temporary relief. What an irony! One really wonders why it has allowed its economic policies to be made ‘subservient’ and a clear ‘hostage’ to its political ambitions in Bihar. This appears to be a simple case of ‘what sensible economics proposes, dirty politics disposes’. One thus wishes that the Modi government would have shown enough political courage to continue with its usual economic stance by timely revising the retail auto fuel prices vis-a-vis the international pricing situation and the applicable foreign exchange rates to indicate that it really means business, come what may. Ironically, the priorities of our political masters lie somewhere else.
SK Gupta, Delhi
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