oppn parties Good Monetary Policy Needs To Be Complemented By Matching Fiscal Policy

News Snippets

  • Karnataka HC has ruled that a harassment complaint lodged by a wife after receiving a divorce notice from the husband loses its weight in the eye of the law and quashed the FIR filed by a women against her husband and in-laws
  • 35 people killed in renewed violence in Manipur, 30 of them militants
  • Manipur boils on the eve of Home minister Amit Shah's visit as militants strike, vandalize MLAs home and loot armouries
  • Kerala chief minister P Vijayan says Centre's decision to cut the borrowing limit of the state is 'sadistic' and shows its negative mentality towards the state's development
  • Rahul Gandhi recieves passport, set to travel to the US
  • Centre said that the march-to-Parliament by wrestlers was a 'deliberate provocation'
  • Prime Minister Modi inaugurates the new Parliament building, calls it 'cradle of empowerment'
  • Mamata Banerjee will most likely attend the opposition meet called by Nitish Kumar in Patna
  • With container prices, which were on fire, crashing by 40% YoY, importers and exporters in India heaved a sigh of relief as the burden of high freight costs will reduce
  • In an aim to push lenders to manage risks better after the US financial crisis, the RBI has reviewed bond value norms
  • 14 countries under the Indo-Pacific Economic Framework (IPEF), including India, entered into an agreement to boost supply chains and counter China
  • Malaysia Cup badminton- H S Prannoy wins the title beating Weng Hong Yang of China 21-19,13-21, 21-18
  • Yashasvi Jaiswal replaces Ruturaj gaikwad as stand-by opener for the WTC final
  • IPL final washed out due to rain, rescheduled for today, the reserve day
  • In a shameful incident, Delhi Police manhandled international wrestlers when they sought to march peacefully to the new Parliament building to highlight their greivances, detained some top wrestlers
Fifth IPL title for Chennai as Ravindra Jadeja hits 10 off last two balls to spoil the party for Gujarat Titans
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Good Monetary Policy Needs To Be Complemented By Matching Fiscal Policy

By Sunil Garodia
First publised on 2020-10-10 12:34:04

About the Author

Sunil Garodia Editor-in-Chief of indiacommentary.com. Current Affairs analyst and political commentator.

As expected, the Monetary Policy Committee of the RBI has decided to hold interest rates. Citing supply disruptions due to the lockdown as the main reason for inflation, it has also chosen to ignore the inflation rate which has gone beyond the limit set by it.  The MPC has also taken other important decisions to bring more liquidity in the market. The RBI governor has said tat the GDP might contract by 9.5% in 2020-21. He also said that he expects a strong performance in the last quarter f this fiscal.

But is liquidity the problem, or the main problem? Banks have enough cash but they are not lending either due to the scare of decisions being questioned or due to the fact that quality projects from reputed borrowers are not coming up. Maybe it is a combination of both these factors. Whatever the exact reason, banks are increasingly parking their funds with the RBI.

For the last six to eight months, the RBI has done much better than expected in managing the monetary policy. But with the precarious state of the economy, only good monetary policy is not enough to turn the wheels. There has to be a matching fiscal policy.

The government needs to make huge and rapid investments in infrastructure projects. It needs to find the money to make these investments. It is true that indiscriminate borrowing by the government invites ratings downgrade. But that is to be considered only when such borrowings are for funding handouts or populist schemes, or to service debts, in which case the the country is sure to fall in a debt trap. When it is a matter of life and death and when money on the scale required cannot be arranged from any other source, the government has to borrow.

The economy is crying out for investment from the government. Only the Centre is now capable of improving the business sentiment by initiating big projects. Once orders are placed for those, there will be a cascading effect that will work like magic across all sectors of the economy. Jobs will be generated, tax collections will improve and hopes will soar. Granted infra projects have long gestation periods and the government will have to service and repay the loans. But that is one risk it has to take to revive the economy.