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6 April 2016 Editorial


6 APRIL 2016

Staying accommodative

The Reserve Bank of India’s reiteration of an accommodative stance after it cut the repo rate by 25 basis points on Tuesday is a clear and unequivocal message that the monetary authorities stand ready to spur economic growth. Indeed, Governor Raghuram Rajan has gone a step further by explicitly stating that going forward, policymakers will be looking for greater elbow room, including in additional readings of low headline inflation, indications of softening core inflation, and evidence of transmission of its previous interest rate reductions. Explaining the rationale for his policy action, Dr. Rajan said the RBI’s aim is to help give a monetary fillip to private investment, which is currently becalmed by low capacity utilisation. The central bank’s focus on domestic growth comes not a moment too soon. International Monetary Fund chief Christine Lagarde on Tuesday warned that the global economy is losing momentum, with the recovery being “too slow, too fragile”. Among the headwinds that both Ms. Lagarde and Dr. Rajan have cited is China’s current slowdown. For India, this year’s monsoon will be a critical factor. If, as the RBI has assumed in its policy formulation, rainfall during the season is broadly normal after two consecutive years of shortfall, it would provide a healthy supply shock: simultaneously bolstering rural demand and boosting the availability of farm produce. That would help temper inflationary trends. The RBI, for its part, has found comfort in a string of data points. These include its Consumer Confidence Survey that shows a marginal improvement in consumer sentiment and the manufacturing purchasing managers’ index reflecting a continuing expansion. And survey outcomes — both for industrial and services outlook for the first quarter of the new fiscal year — suggesting that business expectations remain positive have fed into the central bank’s decision to retain its 7.6 per cent forecast for growth in gross value added terms for 2016-17.

On the inflation front, the RBI has drawn reassurance from the fact that food inflation eased in the second half of the last financial year, notably as a result of a decline in prices and not as a result of the base effect. The central bank expects retail inflation to continue to decelerate and remain around 5 per cent this year. And showing that it has not dropped its guard against incipient price pressures, the monetary authority flagged uncertainties such as historic lows in reservoir levels, the recent upturn in prices of commodities, especially oil, and the impact of the implementation of the Seventh Central Pay Commission’s recommendations, all meriting close watch. Dr. Rajan is convinced that improved monetary transmission holds the key to unlocking credit. To that end, the move to a marginal cost of funds based lending rate regime has already helped pare borrowing costs by at least 25 to 50 basis points, according to initial estimates of the RBI. The coming months will tell if Dr. Rajan’s pointed efforts to clean up banks’ balance sheets will also help augment funds availability in the real economy.

Lessons from a massacre

It is difficult to equate delayed justice with ‘justice denied’ in all cases. There may be occasions when even a delayed conviction can send out a message that there is no such thing as permanent impunity. The verdict of a Special CBI Court in Lucknow sentencing 47 police personnel to life imprisonment for participating in one of the most heinous massacres perpetrated in the name of an ‘encounter’ with armed terrorists, is one such instance in which some sort of accountability has been established, and the law has caught up with the perpetrators. On July 12, 1991, a bus carrying Sikh pilgrims was intercepted by the police about 125 km from Pilibhit in Uttar Pradesh, and all the men among them were taken away in a van. The police later claimed that the men were terrorists and that 10 of them were killed in three different ‘encounters’ in the forests that night. A Central Bureau of Investigation probe ordered by the Supreme Court later revealed that the victims were killed in fake encounters. The agency charge-sheeted 57 personnel, but 10 of them died during the course of the trial. It is worth recalling that militancy was at its peak in Punjab at the time. There were fears that it had spilled over from Punjab to the Terai region of Uttar Pradesh. The police in both States suspected that some Punjab militants were active in the Terai too, and Pilibhit, a district with a significant Sikh population, was under watch. It was also a phase in which the state was seen to be using questionable tactics to eliminate suspected terrorists.

A judicial commission appointed by the Kalyan Singh government had given a clean chit to the police, even contending that the officers involved in the Pilibhit operation deserved ‘commendation’. But the CBI came to a different conclusion. However, the agency was faulted by human rights activists for leaving out superior officers, especially the Superintendent of Police at the time, R.D. Tripathi, from the charge sheet. Many felt that a night-long operation involving personnel from several police stations could not have taken place without the knowledge of the district police chief. The trial judge, too, has noted that senior officers posted in the district at the time could have been part of the conspiracy. It is possible to commend the agency for successfully prosecuting those involved, but it is the families of the victims that deserve credit for their perseverance. However, the long delay and the failure to bring higher officials to book will surely cast a shadow on the quality of justice meted out in such cases. In troubled times, uniformed men tend to resort to extrajudicial killing not only to wreak vengeance on militants or extremists targeting their colleagues and civilians, but also to garner rewards and promotions. It can only be hoped that a verdict fixing responsibility will help end the culture of impunity seemingly enjoyed by the security forces, and bring a sense of closure to instances of such excesses.


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