Never has so much been owed by so many for so little reason — millions of Indians who have taken home loans are paying exorbitant, some may say extortionate, interest because the home of India’s monetary policy seems to have become a training camp for anti-inflation jihad. We have the finance minister publicly, repeatedly and rightly arguing for rate cuts — now saying that at least loans up to Rs 20 lakh deserve leniency. Having made the broader case before, the minister is now hoping that at least lower-risk loans can be given some relief. But it should not have come to this. Interest rate changes should follow economic numbers, context and logic. The RBI should have by now seen the case for lower rates, not just for the bottom end of home loans, but across the board. It hiked interest rates when inflationary pressures were being driven by supply-side factors, and therefore a monetary medicine was by definition a huge overdose. Those hikes have predictably slowed down growth, lowered the investment/GDP ratio and threaten to dampen India’s growth profile. But even in the current ‘non-boom’ like conditions, the RBI is not moving on interest rates.

India’s real interest rate is among the highest in major Asian economies. And instructively, inflation is not moderate or low, as the RBI defines it, in Asian countries with low interest rates.

Unlike many of those Asian countries India is a real democracy, and before anyone scoffs at politicians asking for lower home loan rates they should understand the context of these demands. Look at the Congress. It has only recently understood that home ownership is not some elitist game played in the parlours of South Delhi and South Mumbai but a countrywide paradigm shift. Yes, of course, the Congress is looking at votes; it is a political party. But this particular search for votes is informed by a mature if much-delayed redefinition of the aam aadmi. The BJP, self-professedly a party that understands the middle class, stopped understanding a lot of things after its 2004 defeat. But its recent national executive called for reducing home loan rates.

... contd.