Indian Economy in Mess: Thanks to Pranab-da!

To add on to the miseries, instead of taking up bold reforms to address the problems, UPA government has outsourced all macroeconomic policy to the RBI by hiking interest rates which gave rise to double digit inflation. The IIP’s numbers that were out yesterday were nothing but a validation to this. The data likely confirms that inflation is running higher than real GDP growth and we are in a stagflation territory.

After yesterday’s IIP data, the expected disagreement for a cut in interest rates has gone out again. In one of the weirdest reactions ever, the stock market actually rose regardless of the insipid data as it assumed that the prospects for a rate cut now stand improved.

As CLSA economist Rajeev Malik scrutinize, the call for interest rate cuts appears to ignore the fact government inaction is more to blame for the precipitous drop in economic growth. And given the deep-rooted inflation levels, cutting rates now will worsen things. Mqalik said, “Even if an investment upturn adds to aggregate supply, it does so with a lag. In any case, boosting aggregate demand from, say, higher investment should be matched by shrinking the fiscal overhang and moderating consumption growth. In the absence of such finely balanced recalibration – itself a challenge – India will suffer a more protracted macro adjustment.”

The difficulty to bear on the RBI to cut rates amounts to the most egregious instance of buck-passing by Mukherjee. And now, it emerges that having landed the economy in a fine mess, he is preparing to give up his post in return for a sinecure in the Rashtrapati Bhavan. In the annals of political history, it’s about the biggest reward for policymaking failure as one can hope to expect.