The marginally lower inflation figures for June at 7.25 have made some analysts optimistic about the RBI reducing its policy rates. The disturbing factor, however, was the continuing double-digit rise of 10.81 per cent in food prices, including potatoes, milk, foodgrains, vegetables and pulses, about which the RBI can do nothing.
It is the government that has to handle the supply side which is now further threatened by the monsoon which has been scattered and inadequate so far. India Inc. hopes for reduced interest rates in RBI’s July 31 monetary policy even though the RBI and others have clarified that interest rates are only one factor responsible for the slow pace of growth. Urgent administrative measures are required by the government to stimulate growth.
The International Monetary Fund (IMF) has revised its growth forecast for India to 6.1 per cent, from the 6.8 per cent it projected in April. This was predicated on the slow global recovery seen in the last three months. If it’s any consolation the IMF has also revised its global growth forecast a notch lower, from 3.6 per cent to 3.5 per cent, for 2012.
It is necessary for the Indian government not to rely on the global recovery for growth and to develop the domestic market by putting purchasing power in the hands of the people. Global recovery is nowhere in sight, which now rides on the back of quantitative easing which only means Ben Bernanke, the US Fed, and others printing more money. This is a cosmetic solution and not the real thing.