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Excellent first move by Raghuram Rajan

Raghuram Rajan's bold move of hiking the repo rates at his first policy announcement is very laudable.  It shows that there is no discontinuity in the policy apparatus at RBI. There is definitely a good tone to the RBI now which was worked out in last days of Subba Rao, and came out as 'big bang' reforms in the first speech of Rajan.

This move though bold and unpopular must be highly commended for its judgment and foresight. It was the need of the hour; else common man would have sunk much deeper into the mess.

Though repo rate hike will be downright bad for most of the corporate and borrowers in general, and also restrict growth, RBI was correct in focusing on runaway inflation and possibility of sharper spikes in inflation. *


India Inc which is righteously furious should not be angry at the RBI, which had donned the role of a knight, but at the government which has been incapable to doing anything in terms of 'big bang' moves despite the entire country and its business establishments painted in blood red and in incaluclable mess and misery. If anything, these chambers should be asking, begging if necessary, this government to move on some really important issues before the specter of elections comes closer. Closer we are to elections, much less likely that we will get any reforms because most of the reforms that we need now are very unpopular ones. Government, it would do well, if it could rollback several of the populist measures it has rolled out, or in the process of rolling out. Something like Food Security does not belong on the diminished and vitiated balance sheet of India.

Simply put, if India Inc is asking for growth and for RBI to cut rates in environment of such high inflation, then they are barking at the wrong tree. The ball is entirely in the court of the UPA-government, and like it or not, it is this comatose government which has to do something (anything) to get the growth started. Government spiking RBI for disobedience or "having to walk alone" is not a good strategy. 

People have to realize RBI is literally fighting for the survival of common man, its businesses and its currency. RBI is the only one lifting the one side of the cloth, other side is that of the government to bear. Unfortunately, government thinks its walking alone while in reality it is the RBI which is walking alone.


The Key

To me the most important revelation and key takeaway is that RR has worked his own independent voice, probably much against the wishes of the Finance minister and the ruling party. This is an excellent indication and I sincerely hope that he is able to maintain this clarity and independence for rest of his tenure.

It’s also heartening to note that Inflation remains one of the biggest concerns of RBI, thus continuing the great work of his predecessors.

This portends well for rest of RR's years and hope carries on the good, independent and holistic legacy of his predecessors.


PS: *With the cost of oil stabilizing much above the 'under recovery' levels, it’s only a matter of time before a big-bang diesel price spike will come about. However, it is highly unlikely that this would come before or close to the festivals of Narathri-Diwali-Dasara. But that does not mean the risk is not in offing.

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