The Modi government has come in for a lot of criticism recently. Not living up to its tall pre-election promises seems to be the top complaint. It is true that the government has struggled to get the economy moving quickly. Squabbles with the RBI did not help matters. But the economic recovery was bound to be slow. The problems facing the government, when it took over last year, precluded a quick turnaround.
Thus it wasn't surprising there was very little to talk about initially. Now though, falling commodity prices have given the economy much needed comfort. The inflation and the fiscal deficit are slowly coming under control. But the good news does not stop there.
The Reserve Bank of India (RBI) has given the government a reason to be very pleased. As per news reports, the RBI has paid the highest ever dividend to the government. The amount; a staggering Rs 658.96 bn! We believe this will certainly help the government meet its fiscal deficit target. Public capex plans will also get a big boost. There's fiscal leeway now for some extra spending on infra projects.
In the face of all the talk about hostility between the RBI and the government, this is welcome news. We have always maintained that the RBI is a model central bank that has the economy's best interests at heart. It is distressing when the government's desire for lower interest rates has lead to an unnecessary rift with the central bank.
It is high time the government understands that cutting interest rates is not the only way the RBI can help the economy. It would be in the country's best interests if communication and co-ordination between the two is strengthened. With the RBI playing its part well, the ball is now in the government's court we believe.