Urjit Patel, Deputy governor of RBI has taken over as the new governor of RBI. Now, It is expected that he will continue Raghuram Rajan’s policies. However, Markets are already hoping for a rate cut from the new governor. Hence, As usual the speculators are already expecting for a growth in stock market. Now, the RBI governor is expected to keep the inflation under 4%.
In such a case, How will a repo rate cut help ease inflation. Firstly, The root cause of inflation in domestic economy is poor macroeconomic policies which result in excess liquidity being pumped into the economy and poor circulation of that liquidity in the market. So, Let us analyze if repo-rate cut would help tame inflation.
If the purpose of rate cuts is to help the small businesses to refinance loans at lower rates, it might help the consumers and small businesses in economy. However, If the rate cuts are devised solely to lure consumers into borrowing instead of generating competition then Indian economy is headed for a destructive path very similar to European, Japanese and US central banks.
If Repo-rate cuts are hoping to result into any economic growth, then look at the US central bank having interest rate close to zero and European with Japanese central banks at negative interest rates and achieving no economic growth. Hence, Repo-rate cuts have nothing to do with real economic growth but it just creates a bubble in domestic economy.
When the repo-rate cuts have happened, so far the banking sector has not transferred all the benefits from such rate cuts directly to consumers. In order for these rate cuts to reach the consumers directly, there has to be a healthy competition in the banking sector. The lack of competition does not let transfer the rate cuts to consumers. For this purpose, the RBI can start its own bank to start this competition in banking sector.
Also, Unless the RBI reforms its monetary policy so that wages of Indian workforce catches up with their productivity, there will be no real growth in the wages and overall economic growth, if any, will be just in the growth of stock market bubble. Such bubbles eventually burst causing tremendous pain in domestic economy. It primarily affect the poor citizens of country. To engender more circulation of currency in domestic economy, free market economic reforms are needed to break the behemoth of corporate monopoly in every sector of Indian economy.
Hence, the bottom line is…whether the new RBI governor shows a Hawkish or Dovish message, fundamental reforms in monetary policy are needed for engendering competitive capitalism or free markets in Indian financial Industry. In that regard, two volumes would be useful for the upcoming RBI governor
1. End Unemployment Now: How to Eliminate Joblessness, Debt and Poverty Despite Congress (2015)
2. Mass Capitalism: A Blueprint for Economic Revival (2014)
ABOUT THE AUTHOR
Apekshit Mulay (Apek) is a Business and Technology Consultant at Mulay’s Consultancy Services. He is also a senior analyst and macroeconomist in US Semiconductor Industry. He has authored three volumes in three consecutive years viz. Mass Capitalism: A Blueprint for Economic Revival (2014), Sustaining Moore’s Law: Uncertainty Leading to a Certainty of IoT Revolution (2015) and How the Information Revolution remade Business, and the Economy: A Roadmap for Progress of the Semiconductor Industry (2016). He pursued undergraduate studies in Electronics Engineering (EE) at the University of Mumbai, India and has completed master’s degree in EE at Texas Tech University, Lubbock, TX. Mulay authored a patent ‘Surface Imaging with Materials Identified by Colors’ during his employment in Advanced CMOS technology development team at Texas Instruments Inc. He chairs technical sessions at International Symposium for Testing and Failure Analysis (ISTFA). USCIS has approved his US permanent residency under the category of foreign nationals with extraordinary abilities in science and technologies even though he did not pursue a PhD degree in engineering or economics. He has been cited as an ‘Engineer-cum-Economist’ by superstar economist Professor Ravi Batra in his 2015 Volume ‘End Unemployment Now: How to Eliminate Poverty, Debt and Joblessness despite Congress’. He has appeared on National Radio shows, made Cover Story for Industry magazines, authored articles for newspapers as well as several reputed blogs & industry publications. He has also been invited on Television shows (because of his accurate macroeconomic forecasts) for his ideas about Mass Capitalism. He is also an entrepreneur in an e-commerce businesshttp://calcuttahandicraft.in/ which he started to envision his ideas about Mass Capitalism. His also has a very well visited personal blog www.ApekMulay.com