The Gold Standard | ‘Reform-minded’ UPA

On the 17th, even as I was posting my blog on India, I had failed to take into account the crassly populist and counter-productive increase in the Minimum Support Prices (MSP) for agricultural crops by the UPA Government few days before that. The 170 Rupees per quintal (100 kgs.) increase in the MSP for paddy is a strong signal to farmers to continue to produce the water-guzzling paddy while the granaries are already overflowing with sacks of paddy, providing a ready and eternal supply of fodder for rodents. Business Standard has a good edit on the hike in MSP.

In my weekly column in MINT today, I had lauded the RBI for holding rates on Monday. It was the right thing to do under the circumstances. A rate cut would have been an attempted bailout of the Indian government with as much chance of it succeeding as bailouts in Europe are likely to. I had failed to list the hike in MSP as one of the reasons for RBI restraint. It surely must have played a role in their decision.

The clamour for a rate cut and the disappointment over the failure of the central bank to deliver it are as disappointing as they are not well thought through. The origin of India’s growth slowdown and inflation persistence clearly lies elsewhere.

One thing for sure: Surjit Bhalla now knows what to write this coming Saturday in his column for IE.

DISCLAIMER: This is an archived post from the Indian National Interest blogroll. Views expressed are those of the blogger's and do not represent The Takshashila Institution’s view.