A day before the mid-term review, RBI’s take on this embarrassment of riches was: high real GDP growth; manufacturing doing well for April-August 2007, but some slowdown; services doing well; barring electricity, infrastructure not doing that well; tax revenue buoyant; inflation under control because of “pre-emptive monetary measures since mid-2004 accompanied by fiscal and supply-side measures”; crude oil prices up to $89.5 a barrel; slowdown in growth of merchandise exports, but large net invisibles surplus and large FDI ($6.6 billion from April to July) and FII ($21.2 billion from April to October 19, 2007) inflows. One can’t disagree with this, except on inflation.

We have inflation rates of 3.07 per cent via the wholesale price index (WPI), week ending October 13; 7.26 per cent via the consumer price index (CPI) for industrial workers, August; 7.89 per cent via the CPI for agricultural labourers, September; 7.61 per cent via CPI for rural labourers, September; and 5.7 per cent via CPI for urban non-manual employees, September. As a statistical point, these trends vary because baskets and weights differ, as do points of collecting price data. Having said that, it is impossible to argue that ‘pre-emptive monetary policy’ has had much to do with reducing WPI-based inflation, or can have much to do with reducing CPI-based inflation. RBI has of course hedged by bunging in ‘fiscal and supply-side measures’, which can cover everything else under the sun.

I haven’t been able to track down who first used the expression ‘pre-emptive’ in a monetary policy context. Pre-emptive action means action taken as a preventive or deterrent measure, often in a war context. I wonder how many people in RBI play bridge, because in that context, a pre-emptive bid has a specific nuance. It is a bid when one has very few high card points and wants to disrupt communication between opponents. RBI has almost no high card points in determining monetary policy.

... contd.