Friday, July 11, 2025
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State of the economy

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The RBI cut its overnight lending rate by 25 basis points to 7.25 %. The Sensex fell by 661 points the same day. The cut was only a half of what was desired and the chances of further cuts have tapered off. The RBI projected that the CPI inflation would rise to 6% by January 2016. That was higher than its April policy forecast of 5.8%. But the January projection is overcast by the possibility of a monsoon failure leading to a below normal prediction. Inflation may rise along with food prices and rate cuts will then be ruled out. The RBI has effected a 25 basis points cut in the repo rate despite the prospect of a bad monsoon and the stabilization of global oil prices. A significant hike in GDP growth and investment is not likely to happen. The Bank has marked down output growth projection for 2015-16 from 7.8% to 7.6%. The government is optimistic for its own reasons about an industrial revival. But the RBI is convinced that in the circumstances monetary easing is necessary.

The government has to gear up to face the economic hurdles. It has to deal with what is likely to be a poor monsoon. The way to tackle it is to release food stocks on a timely basis. Imports of essential commodities have to be reined in. Speculative measures should be eliminated to the extent possible. Adequate supply of seeds and fertilizers to farmers should be assured. Minimum support prices for agricultural produce should be kept at a stationary level. On the other hand, the revised method of making GDP growth estimates should not be the measuring stick for the state of the economy. Weak corporate earnings and lack of greenfield projects are the real indicators of the decline setting in.

 

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