Just as the US Fed chose to take the long end of the yield curve by the scruff of the neck, Mr. Srinivasan has argued that a similar method should be adopted by the Indian central bank. He seemed frustrated that despite RBI lowering rates, Indian firms are not getting access to funding as most banks are parking their surplus liquidity in government securities. Furthermore, increased government borrowing is also leading to crowding out of private investments. Thus, printing money by the RBI and buying back bonds from the market seems to be the only way out as per the new CII President. Furthermore, since the inflation is also very benign at the moment, the odds that such a step might lead to runaway inflation are also on the lower side. Although he was aware that such a step might unleash a fresh round of sovereign downgrades, it also carried an upside with it in the form of greater GDP growth. The central bank must have indeed deliberated upon such an idea but seems to be adopting a wait and watch approach at the moment.
Look at government inefficiency, food prices have galloped at an alarming rate over the last few months. Some blame it on the poor monsoons. Some blame it on hoarding by greedy middlemen. In my opinion, the government unknowingly itself is a massive hoarder. As per a report in a financial daily, the stock of rice and wheat in government granaries is way above the minimum requirement. Sadly, much of this excess stock is stored in the open. It either rots or feeds pests. In my view, this is a national shame. We cannot get the basics right in such a crucial area when food prices are spiraling out of control and millions of Indians still go hungry. Such stocks should be stored properly and released in small lots to stabilise prices.
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