Column : RBI—the Lone Ranger syndrome

According to at least five criteria, management of the Indian economy over the last several years has been awful. The growth rate has collapsed to unimaginable low levels of only 5%. Yes, that is the near-official estimate by the IMF for GDP growth in the calendar year 2012. By the same definition, growth was 10%-plus, and marginally above that of China, in 2010. Second, the fiscal deficit, long after the crisis/recovery years of 2008-09, is back above 8% of GDP. These levels were last seen in India in the high interest rate regime of the 1990s. Third, the level of inflation, however measured, is uncomfortably high, and higher than what it should be by at least 2 to 3 percentage points. Fourth, real long-term interest rates in India—rates at which medium-sized corporations can borrow, are at 8%-plus, or nominal 16%-plus. Fifth, the value of the rupee is at record low levels, and disturbingly so. After close to a decade of stability around a value of R46/$, the rupee has hovered at a rate some 20% lower for most of 2012.

We can debate the causes of each of these disturbing facts ad infinitum, as we are more than capable, and able, to do. But nothing will change the ugly reality. Macro-economic policy has been a complete failure in India. This was, and is, expected. With the dysfunctional politics of the US, and the dysfunctional economics of Europe, it is a wonder that we are growing at all.

But wait. We can't blame the Europeans any more, at least since October 2011. I belong to the camp that believes the European Central Bank, under the leadership of Mr Draghi, has distinctly changed course, and changed course for the better. And in a week, the dysfunctional politics of the US may appear to have peaked. Whoever wins the Presidential election, it is unlikely that the future of politics and cooperation between the two major political parties in the US will be worse than what we have witnessed over the last several years.

... contd.

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