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7 April 2017 Editorial

 

7 APRIL 2017

RBI monetary policy:Growth, with caveats

The Centre must pay heed to Governor Urjit Patel's plainspeak 

The central bank was not expected to tinker with key policy rates in its first monetary policy review of 2017-18 unveiled on Thursday, following its decision to shift from an accommodative to a neutral monetary policy stance in February. The Monetary Policy Committee chaired by Reserve Bank of India Governor Urjit Patel has, in fact, decided to raise the rate at which the central bank borrows funds from banks (the reverse repo rate) by 25 basis points, from 5.75% to 6%, while leaving other policy rates untouched. This marginal change is aimed at sucking out from the system excess liquidity that remains a lingering concern, despite coming off its peak in the aftermath of the demonetisation exercise. The RBI has also proposed a new liquidity management tool that awaits government approval, making the draining of surplus liquidity a critical priority all through this year. The efficacy of the RBI's liquidity management toolkit will impinge on another key concern: inflation, which is expected to climb to 5% by the second half of this fiscal. The RBI says achieving the stated target of 4% inflation even next year could be challenging, with no "lucky disinflationary forces" expected, such as benign commodity and oil prices. It has also pointed to a one-time upside risk to inflation with the implementation of the Goods and Services Tax.

The RBI is quite optimistic about an uptick in the economy this year, projecting 7.4% growth in Gross Value-Added, compared to 6.7% in 2016-17. Along with improved prospects for the world economy a rebound in discretionary consumer spending at home is likely, in line with the "pace of remonetisation" and investment demand on account of lowered interest rates. While the government may take heart from the higher growth projection, it must pay equal heed to Mr. Patel's plainspeak on four key issues. First, the need to urgently resolve the surge of bad loans on bank books, for which the RBI will unveil a new Prompt Corrective Action framework by the middle of this month. Without this, a virtuous cycle of healthy credit growth necessary for investment and job creation will remain elusive. Second, the RBI has reminded the government there will be "clearly more demand for capital" in the coming days. The government's allocation of Rs.10,000 crore to recapitalise public sector banks is obviously inadequate. Third, while banks have reduced lending rates, the RBI has pointed out there is room for more cuts if rates on small savings schemes are corrected. Though a formula-based rate was adopted to set these rates last April, small savings schemes still deliver 61-95 basis points higher returns than what they should if the formula is followed, as per the RBI. Most important, the government must not ignore Mr Patel's categorical call to eschew loan waivers of the kind just announced in Uttar Pradesh. This, he warned, would crowd out private investments and dent the nation's balance sheet.

 

Barbarism unlimited:

On 'cow protection' and Alwar attack

The death of a man from injuries at the hands of "cow protection" vigilantes in Rajasthan's Alwar district rightly animated Parliament. The details of the violence inflicted by a mob on Saturday are chilling and vividly caught on mobile phone video, and demand an assurance from the government that justice will be done. It is unfortunate that as the opposition raised the issue, the response from the treasury benches was anything but satisfactory. In fact, coupled with comments from spokespersons of the BJP and even the Rajasthan Home Minister, the message from the authorities indicates that an outrageous equivalence is being sought to be made between the lynch mob's actions and the victims' alleged - simply "alleged" - actions. The facts are these. Pehlu Khan, the deceased, and four others were on their way back to Haryana after buying cattle in Jaipur. A mob set itself upon them in Behror on the Jaipur-Delhi National Highway. The violence was explained as an attempt to prevent the "illegal" transportation of cattle. Instead of condemning the violence and stating that nobody has the right to attack individuals no matter what they may and may not have been doing, all that has emanated from ministers at the Centre and in Rajasthan is evasive prevarication. State Home Minister Gulab Chand Kataria said no one had the right to take the law into his own hands, but added it was "all right" that those illegally moving cattle were nabbed. In the Rajya Sabha, Minister Mukhtar Abbas Naqvi implied that no incident of such cow vigilantism had occurred.

Over the last three years, governments in different States, most of them ruled by the BJP, have tightened existing laws against cow slaughter. It is no accident that the period has been attended by an aggressive vigilantism. From the killing of a man in Dadri in Uttar Pradesh in 2015 on suspicion that he had beef in his possession, to the flogging of a group of Dalit men who were skinning a dead cow in Una in Gujarat last year, cow vigilantes, in the guise of being gau rakshaks, have created an atmosphere of fear. It is disturbing that legislative initiatives and mob violence have been moving in step. It is also true that while distancing organisations of the Sangh Parivar from the incidents, individuals affiliated to these organisations, including the BJP, have played down the instances of violence by focussing on how the alleged crimes had offended believers. And in this constant din of pledging support to the larger effort to protect the cow, there is little official deliberation on the actual implementation of anti-cow slaughter laws, let alone a recognition of the incentives these laws create for the illegal movement of animals across jurisdictions. By failing to condemn lynch mobs for murder and bring vigilantes to book, the government only diminishes Indian democracy.

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