It would be silly to have expected an unconventional stimuli by the Reserve Bank of India to have elicited an immediate response. It is equally silly to expect an economic uptick even in the longer term because the inexorable slowdown is a factor of many incredible errors, not the least in reforms that should have turned things around.
Neither Modi 1 nor Modi 2 reforms have worked thus far, even if only because they were sound concepts distorted by poorly planned execution. Common sense informs one that when state actions drive incomes down across large swathes of the population, demand, the oil that keeps commerce going, cannot pick up. Matters have been made worse by the terrible state of global downturn.
Nevertheless, the RBI’s four repo rate reductions this calendar year, lowering it by 110 basis points, to 5.4 per cent from 8.5 per cent on 8 October 2018, expect to push the economy out of despair, showcased by the mournful state of the automobile and the realty sectors, even if not by the ongoing tragedy in the countryside. Only time will show how this monetary policy stimulus gets transmitted down the line but there is a disconcerting lack of clarity in the RBI’s mind, exposed by the governor’s admitting to not knowing whether the slowdown “is structural, cyclical or a momentary phase” that, by his admission, is “an aspect which requires deeper analysis”.
That the RBI is working on an ambiguous and probably optimistic understanding that India is only in the midst of a “cyclical slowdown, not a deep structural slowdown” does not inspire confidence.
It is unfair to expect the Reserve Bank of India to restore balance to the unsettled state of the economy but in the absence of anything of substance emerging from the government, one has to abide by the pointers coming from the RBI data.
The numbers disappoint across the board, from consumer confidence, to investment growth, to the official GDP growth that slipped to 5.8 per cent in the last quarter of 2018-19 and annual GDP at a five-year low. Adding to the misery, industrial output grew two per cent in June to go by the government’s Index of Industrial Production data of August 9 and the RBI’s consumer confidence index released on August 7, tumbled to 95.7 in July with the expectations index dropping by four points to 124.8.
Hopes pinned on the autumnal festive season that kicks off in September and runs through to the new year, when people willy-nilly buy, could hardly be the assumption guiding the economic strategists. Even without the stalwarts at its helm, those that the RBI let go, the ordinary Indian would be justified in seeking guidance from this repository of India’s monetary wisdom.
Meanwhile, one can only hope that the massive loss of jobs in the automotive sector will move Modi 2 to accepting the plight of the economy because the farm sector job losses certainly did not.