FDI in retail: "Modern" solutions to "old" problems?

The government of India is patting its back as by the passing of the much awaited "FDI in multi-brand retail", some experts believe that the reforms are back on track. In this blog, I don’t intend to discuss the criticality of the reform rather my focus will be on the efficacy of this reform. With the issue increasingly being politicized across the nation, let’s try to see whether this reform really aims at solving issues esp. inflation, which a common man faces. Will the benefits percolate to aam aadmi or will, once again, the crème-de-la-crème in the metros only share the spoils?

Interest rate hikes: Has the time to apply brakes arrived?

The RBI interest rate policies despite evincing lots of interest have become predictable off-late. Given the fact that the last 13 revisions have resulted in rate hikes, there is an understandable gloom associated with it. Our personal loans are getting costlier, buying your dream home isn’t easy, budding entrepreneurs have seen the cost of capital head north etc. Before we discuss further, let’s first try to understand the rationale behind these rate hikes by RBI. 

The policy being referred to is “Monetary policy” by which the monetary authority of a country like RBI, controls the supply of money by controlling interest rates; monetary base and reserve requirements. The policies are designed keeping in mind, the rate of economic growth, inflation, unemployment or exchange rate. The current RBI policy also referred to as contractionary policies, seeks to address the high inflation levels in India by suppressing demand. The rationale is that higher interest rates would lead to less borrowing thereby reduced investments and demand for capital goods. In addition, higher interest rates will also lead to people saving more thereby reducing consumption i.e. demand.  

Seems logical and sound, isn’t it? It is, but empirically it has been established that monetary policies are effective in targeting price stability, exchange stability and financial stability in short term or at best medium term. The Reserve Bank has so far, hiked its key policy rates 13 times, totaling 350 basis points since March 2010 i.e. the hike has been continuing for more than 18 months.  

The positive side of "Rs. 32"

The Planning Commission of India finds itself in a spot after submitting before the Supreme Court that the poor are those who, per day, spend less than Rs. 25 and Rs. 32 in rural and urban areas, respectively. While it’s always debatable whether the right methodology has been adopted or how valid these numbers are, but this "Rs. 32 debate" does have some positive significance as far as our macro policies are concerned. Let’s discuss the two major ones. 

How Anna moved the nation?

It’s ironical but true. It took a 74 year-old to mobilize one of the youngest nations (in terms of demography) in the world that too using the methodology of satyagraha which till the recent past was touted as being out of sync with modern India. In fact many felt “Gandhigiri” was more the "in thing". A nation that saw cricketers and movie-stars being identified as “youth icons” certainly was suddenly enamored by a Gandhian.  The Sydney Herald calls him “The New Gandhi”, The Times quoted, “Anna Hazare: How One Activist Brought the World's Largest Democracy to Its Knees” and so on. After all it was unthinkable that a metro centric- mobilization would reach such humongous proportions. So, how did Anna manage to strike the chord? 

Double Dip: The likely impacts on India

In one of my previous blogs I wrote about why double dip was a possibility in the US? Now after the S&P downgrade of the US debt, it seems that the sentiments have really turned for the worse though fundamentally things haven’t changed a great deal. But what if the double dip materializes and what lies in store for India if US is engulfed by the economic crisis? Let’s discuss them.