Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2018 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Indian Stock Market News, Equity Market and Sensex Today in India | Equitymaster
  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

RBI & FM are in a blame game
Tue, 20 Nov Pre-Open

It's open now. Both finance minister P Chidambaram and Reserve Bank of India (RBI) governor Subbarao have indulged into a sort of blame game as far as dwindling growth is concerned. Chidambaram feels that RBI's hawkish policy is restricting growth. So, the rates should be lowered. However, Subbarao is of the opinion that unless inflation is brought under control lowering interest rates could back fire. Also, he feels that government should take concrete steps towards fiscal consolidation. Because, if not, government will have to bridge the gap through money creation which may further stoke inflation. Thus, a widening fiscal gap does not make a case for lowering interest rates. And in that sense government is responsible for higher inflation and thus lower growth since it is not able to contain the deficit.

However, it may be noted that government is already taking steps to curb the fiscal gap. Lined up disinvestment program and the recent 2G auctions (though not successful) are a few examples. Rationalization of fuel subsidy is another such example. However, the problem is that the steps taken are taking time to materialize.

Also, it may be noted that right now inflation is driven by supply side issues or is either imported. By imported we mean that the prices of certain products that are imported like oil or gold have risen which in turn has stoked inflation. Thus, blaming government completely for rising inflation is not fair.

At the same time believing that higher interest rate is the only factor curbing growth is not completely accurate either. While it is true that lowering interest rates would propel the capex cycle and boost growth favorable government policies are equally responsible for growth to inch higher. But it may be noted that red tapism, snail paced reforms and widespread corruption is hurting growth. And it is the government responsibility to manage these issues. However, coalition politics and low intent on the government's behalf is making life difficult.

Thus, we believe that indulging in low growth blame game is not the right way forward. Both FM and RBI governor should focus on doing their own jobs. Growth, inflation and fiscal deficit are all inter-linked. Neither the finance ministry nor the RBI can be solely responsible for it. It's either a collective win or a collective failure for both of them.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

Read the latest Market Commentary

Equitymaster requests your view! Post a comment on "RBI & FM are in a blame game". Click here!


Small Investments
BIG Returns

Zero To Millions Guide 2018
Get our special report, Zero To Millions
(2018 Edition) Now!
We will never sell or rent your email id.
Please read our Terms


Feb 19, 2018 (Close)