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RBI keeps policy rates unchanged, cuts growth forecast to 6.5%

As expected, the RBI kept its monetary policy focussed on inflation control and kept all key rates unchanged

 

The Reserve Bank of India (RBI) on Tuesday kept key rates unchanged in its quarterly review, while lowering its growth projection to 6.5% and cutting statutory liquidity ratio (SLR- the amount of deposits banks park in government bonds) by 1% to 23%.

 

"The primary focus of monetary policy remains inflation control in order to secure a sustainable growth path over the medium-term. In the current circumstances, lowering policy rates will only aggravate inflationary impulses without necessarily stimulating growth," the central bank said in a statement.

 

The RBI has kept, repo rate (the rate at which the RBI lends money to banks) unchanged at 8.0%. Similarly, the reverse repo rate (the rate at which the RBI borrows from banks) and cash reserve ratio (CRR) remain unchaged at 7.0% and 4.75%, respectively.

 

The central bank has reduced SLR of scheduled commercial banks to 23% from 24% of their net demand and time liabilities (NTDL) from the fortnight beginning 11 August 2012. This move to lower the SLR, however may not be effective as banks' average SLR holdings are already around 30%.

 

Industry body, Confederation of Indian Industries (CII), while welcoming the cut in SLR, said it is disappointed with RBI's decision to maintain status quo in policy rates. In a statement, Chandrajit Banerjee, Director General, CII, said, "...growth of bank credit to the commercial sector has gone down as the private sector is delaying investment due to high cost of credit. A cut in policy rates, at this juncture, would have done much to infuse liquidity in the system which is facing tight liquidity conditions, spur investments among corporates and rev up growth momentum in the economy."

 

RBI cut the GDP growth forecast to 6.5 per cent from the earlier projection of 7.3 per cent in view of the ongoing global economic slowdown.

 

Taking note of the deficient monsoon rains and subdued prices of petroleum products, it raised its fiscal-end inflation projection to 7%, from 6.5% earlier.

 

This is the second consecutive time, RBI Governor D Subbarao has left the key interest rate unchanged to fight inflation, and lowered the growth projection for the current fiscal.

 

Stocks markets reacted negatively to the policy and the BSE 30-stock index, Sensex, fell over 71 points in early noon trade after it had trading 55 points up in the morning.

 

Reacting on the RBI policy, Motilal Oswal, chairman and managing director of Motilal Oswal Financial Services Ltd, said, "The policy inaction continues to send negative signals with hopes of near term easing nearly ruled out. RBI has made a rather big bet on sacrificing growth in the hope of near term stability - somewhat ignoring the stability risk that a lower growth can possibly endanger. Growth risks are only compounding further with investment cycle getting no help from either fiscal or monetary side. Coupled with policy paralysis, this might endanger a rating slippage."

 

The headline or Wholesale Price Index (WPI) based inflation in June was 7.25%, while at the retail level it was at an alarming 10.02%.

 

The pro-growth lobby, which is worried over the growth slipping to nine-year low of 5.3% in the January-March quarter, wanted RBI to bring down the high-rate structures to induce faster economic expansion.

 

RBI has refused to give-in to the demands, saying that "in the current circumstances, lowering policy rates will only aggravate inflationary impulses without necessarily stimulating growth".

 

In its earlier mid-quarterly review on 16th June, RBI had kept the policy rates unchanged to combat high inflation.

 

RBI today flagged external risks emanating from the Euro area and 'fiscal cliff' in the US, uncertainties on commodity prices, deficit monsoons and the "twin deficits" as risks to the monetary policy.

 

"Failure to narrow the twin deficits (current account deficit and fiscal deficit) with appropriate policy actions threatens both macroeconomic stability and growth sustainability," RBI said, adding that financing of fiscal deficit through domestic savings will crowd out private investment, harming growth.

 

CAD for FY12 was at a 30-year-high of 4.2% of GDP, up from 2.7% in 2010-11. The government has also been unable to rein in the fiscal deficit at the budgeted levels. It shot up to 5.9% last fiscal as against the budgetary target of 4.6%.

 

RBI also advised the government to take immediate steps to control fertiliser and fuel subsidies and keep them under 2% of GDP.

 

The central bank said it will continue with open market operations to ensure adequate liquidity. It had injected Rs86,000 crore in the financial system during the first quarter.

 

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Public Interest Exclusive
“Our systems are unable to punish the corrupt and guilty in time”

The basic cause for corruption is that our government is not designed for accountability and delivering services to its citizens. Fundamentally, we are still unable to punish the few corrupt persons identified by the investigating agencies, within a specific time limit


Many of us believe that corruption is the biggest problem in India and therefore if we can fix the corrupt by catching them, it would solve a lot of our problems. I would like to take a look at some of the root causes of corruption in India. The basic cause is that the government is not designed for accountability and delivering services to its citizens. This is a larger problem which can be resolved if adequate effort is made to streamline its administrative processes.
 
Presently if we leave this out of the discussion, a reality which most of us recognize is that we lack the wherewithal to catch the corrupt. There is some truth in this belief and I would like to give some evidence of this. The Anti Corruption Bureau (ACB) in Maharashtra registered 654 cases during 2011. The instances of corruption each day must be in thousands and if only 654 cases are registered in a year by the ACB, it is only tokenism. There is great need to find a way of raising this figure to at least 20 times this, if the ACB is to have any meaningful impact. 
 
Similarly, a look at the performance of the Lokayukta in Maharashtra shows that with a staff of over 80 persons, it received 11,153 allegations during the 25-year period between 1981 and 2006 and could find only 57 instances where it recommended any action by the government! If this is the performance of two of our institutions in one state, can they have any impact on corruption?
 
However, I would submit that there is another more fundamental cause of corruption: Our inability to punish the few corrupt persons which our investigative agencies identify. To illustrate this I am presenting data which has been published in the Indian Police Journal (Vol LVII-no. 2 of April-June 2010). A study was done of the performance of an anti-corruption branch of the Central Bureau of Investigation (CBI) for the period 1980-1984 (mean year 1982) in the year 2008, i.e. after 26 years. I would first like to present the raw data which I have extracted.
 
During the four year period 698 accused had been investigated and out of these 273 persons were charge-sheeted. Out of these, the CBI was able to get conviction in 144 cases. The average time for investigation was 13.4 months whereas the average time to get the convictions was seven years and four months. Out of these only four persons have been to prison for over 20 days, since most of those convicted went in appeals while some of the convicted persons had died. In 2008, 71 appeals were still being contested in the higher courts! The nation is spending money in 71 cases to try and prosecute 71 persons after 26 years! Is it not obvious that the process is irrelevant?
 
It is a reasonable assumption that this study is representative of the actual ground realities in India. It appears to indicate that getting the investigative agencies to become more efficient or bigger may not be the solution to our corruption, since it will get stalled at the judicial process.   
 
Justice BN Kirpal, a former chief justice of the Supreme Court of India, has in an affidavit in a New York Supreme Court stated that justice cannot be obtained in India because of the long time it takes. This affidavit was used to show that justice cannot be obtained in India. Perhaps he was lending credence to the famous Hindi film dialogue that our courts can only give “tareekh pe tareekh” but not justice.
 
We need to find a way to decide on cases of corruption within a reasonable time, by getting our judiciary to accept that decisions need to be given in some reasonable time if the justice system is to be meaningful. Some citizens are saying that there are 164 MPs in our Parliament with charges of corruption. Does this mean they are corrupt, unless the courts pronounce them guilty? The only answer a civilized society can give is a resounding ‘NO’ unless the judicial system finally pronounces them guilty. If we have a judicial system which cannot pronounce corrupt persons as guilty, no Lokpal or any amount of chest beating will reduce corruption.
 
A functional judicial system which delivers in a reasonable time is an essential prerequisite for any reduction in corruption in India and for a rule of law to prevail. Talking of fast-track courts is no solution. We must realize—as Justice Kirpal did—that the justice system is not functioning effectively, and we need to find a way to change this. This can be changed, if we consider an effective judicial delivery system which delivers in any court in less than 18 months. This is possible and must be considered non-negotiable.
 
(Shailesh Gandhi served as Central Information Commissioner under the RTI Act, 2005, during 18 September 2008 to 6 July 2012. He is a graduate in Civil Engineering from IIT-Bombay. Before becoming a full time RTI activist in 2003, he sold his packaging business, Clear Plastics. In 2008, he was conferred the Nani Palkhivala Memorial Award for civil liberties.)

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COMMENTS

NSriramamurty

5 years ago

Public Prosecuter has time of 6 ( six ) Months to put up his Views to Magistrate ,After receiving Police Report on Criminal Complaint given by anybody to criminal Court and Referred by Magistrate to Police to Enquire,While Actually 1 ( one ) Month Time is More than Sufficient for PP as Police and Magistrate are available there to discuss with them for any PP's Doubts. Hence Delay in Disposing Cases . ( 2 )Similarly Jugdes Adjours Cases for Advocates Conveniens ,for his FEES.In TN State,in Swamy Jayendra Swamy Arrest from AP Case , Sr.Advocate hired by TN Governament to argue their Case,was arguing in Another Court in another Case ,Juge simply adjourned keeping Swamiji in Jail for some more time.Thus Judges Consider Advocates earning Fees as More Important than keeping Swamiji in Jail.Thus Judges thinking is to be Chaged ,Fixing Lower Time Limits For ever action in Cour Cases and Reduce Adjournments routinely.Hence their internal rules / Laws are to be Changed .Excellent Article by You.

REPLY

Rajkumar Singh

In Reply to NSriramamurty 5 years ago

How long will we be for changing or making laws, which have become a source of corruption? Just understand the following law:

LAW OF SOCIAL CYCLE:

It analyses the evolution of civilisations and states that a society evolves in terms of a cycle, wherein a nation is first dominated by a group of warriors, then by a group of intellectuals, and finally by a group of wealthy acquisitors.

Then towards the end of the age of the wealthy, there is so much corruption and crime that people get fed up and revolt against the elite or the rulers, who are overthrown in a social revolution.

Since it takes a lot of courage to revolt against the authorities, the successful revolutionaries are the true warriors, who start another warrior age and bring an end to the corrupt rule of money.

This way the social cycle begins a new and moves along in the same succession of warriors to intellectuals to acquisitors and then to the social revolution.

Meenal Mamdani

5 years ago

Excellent article.
I would submit that besides speedy trials, we need scrutiny of laws that are written in such a way as to promote corruption. For example, minor traffic infraction allows the police to confiscate the driver's driving license. A person whose livelihood depends on driving cannot afford the time to go to the police station to retrieve the license. He ends up bribing the police to get the license back immediately so he can continue to work.
There must be many similar laws in many areas of civil society where doing the right thing is made unnecessarily complicated.
It would be a big boon if retired lawyers or law students could go through the enormous number of laws on our books to weed out or modify such laws.

REPLY

Rajkumar Singh

In Reply to Meenal Mamdani 5 years ago

If we are for and against any thing, will it solve the problem or enlarge or enrage it!

If we go by the expert opinions, such opinions will go through the process of likes, dislikes and comments, and when a futile attempt is realised, we switch over to another idea suggested by the Team.

The Team now wants to solve the problem if they are chosen to run the government and it promises like others that within 20 months after coming to power, it will pass the Lokpal Bill.

Despite knowing that after passing it has to be ratified that the said Bill is not unconstitutonal.

Suppose it takes another 18 months as per the expert opinion, what is the guarantee that the Team Anna will not be involved in horse-trading. What is the guarantee that after coming to power, they will not betray the followers or the public? How long will we be going through such rigmarole? What legacy are we leaving behind?

johngray

5 years ago

really great article ,really remarkable.
our system is poor in justice and very in procedure.for that reason corrupt people safe all from all time because no at a time punishment for him in Indian system.
http://www.cheatingindia.com "> indian anti-corruption

Dahyabhai S Patel

5 years ago

Only solution to this is a (draconian) law that will presume that an ordinary citizen/customer (OC/C)who seeks services from government and was asked to pay bribe should be considered always right and onus of proving otherwise must be on government officials who demanded bribe and he should prove this within a week. if he proves that he is innocent, a heavy punishment should be imposed on the (OC/C).If he could not, he should be punished with rigorous imprisonment for life and all his wealth/assets attached.

Black Mamba

5 years ago

Neta, Nabu & Seth have a very symbiotic relationship and are responsible for the current state of affairs. A perfect example - during the dark period of emergency Mrs Indira Gandhi made some changes in the constitution that suited her political agenda at that point of time & the then President Fakhruddin Ali Ahmad signed the proclamation of emergency. Things haven't changed much since then. This trio will change and amend laws to safeguard and promote their agenda of distributing the loot of taxpayers money. Replacing one corrupt MP with another corrupt MP will not help. Once the common man will not be able to take the pressure any more, he will turn everything upside down.

REPLY

Rajkumar Singh

In Reply to Black Mamba 5 years ago

Your suggestion is undemocratic in nature, which shows that you are for revolt, tit for tat, on the line of divide and rule, but that will not be welcomed or accepted by a reformed and civised society.

It can onlt be followed by a deformed or corrupt society.

Black Mamba

In Reply to Rajkumar Singh 5 years ago

Mr Singh, I am not on the path of revolt.

Can you explain why despite being one of the largest 'civilized democracy', our country so much deformed and corrupt ?

Don't you think the skewed policies of the center that render the watchdogs toothless as pointed out by Sh Shailesh Gandhi is a reason.

Don't you think that growing greed and insensitivity is a reason.

Don't you think that uneducated people coming into active politics
for petty gains rather that with a will to build the nation is the reason.

Don't you think that in-spite of the huge budgetary allocations the Govt's inability to provide basic education to the children of the poor & homeless is a reason.

There are three sets of Indian in India :

1. Super rich & corrupt Politician + Bureaucrat + Industrialist busy in milking millions and stashing it away in Switzerland and investing in India.

2. Indian middle class fighting for basics in life & atrocities of No.1 above.

3. Farmers and farm labor in the rural hinterland oblivious of whats going on.

Which class you belong to Mr Singh ?

Rajkumar Singh

In Reply to Black Mamba 5 years ago

You have questioned and you have answered them too,"Don't you think that growing greed and insensitivity is the reason"?

If you cannot understand despite knowing the answer, I need not have to tell you again and again that, "It cannot be denied that both, justice and injustice are liked, practiced, meted, and preached by the public, we, the people of India.

It is the greed or need of the people which makes them either to -go for justice & injustice, or like & dislike.

Those who go for justice, have found an injustice has been done to them. Those who go for injustice, have found a justice has been done to others.

It was the need of the people that made them to go for justice. It was the greed of the people that made them to go for injustice.

You may have to agree that if these both, need & greed, were not there, they would have posed a great problem for the generation of employment.

Because of them, we have the police, lawyer, magistrate, public prosecutor, judge - mostly government servants, to give both, justice & injustice.

If they had not given us both, justice & injustice, we, the people, would have found a vacuum for both, need & greed".

Rajkumar Singh

In Reply to Black Mamba 5 years ago

I have noted that unless any story or article or write-up on any subject is not more than 10K words, it will not be appreciated, but on the Facebook, a person is renowned if he has more LIKES and if that renowned person mentions about a death, it will be liked by all his friends or followers or believers.

If a person cannot understand the moral of the story, only such person is deformed, insensitive, anti-social, anti-national and a highly corrupted person.

Rajkumar Singh

In Reply to Black Mamba 5 years ago

I have noted that unless any story or article or write-up on any subject is not more than 10K words, it will not be appreciated, but on the Facebook, a person is renowned if he has more LIKES and if that renowned person mentions about a death, it will be liked by all his friends or followers or believers.

If a person cannot understand the moral of the story, only such person is deformed, insensitive, anti-social, anti-national and a highly corrupted person.

Rajkumar Singh

In Reply to Rajkumar Singh 5 years ago

Please read CIVISED as CIVILISED.

Sorry for the error.

Rajkumar Singh

5 years ago

I have a very simple, cheap, fast, no legal recourse solution to root out any type of corruption.

If we are against any minister for his misdeeds or not delivering goods to the satisfaction of the people, who have democratically elected that minister, the voters should be given the right also to deselect or reject that minister.

If such a Public Interest Bill is passed, not only the ministers, but also all the corrupted public servants will be taken to the tasks.

You will feel that by having this power, you don't require any other law than the RIGHT to elect and select the candidates for any election and to make it cheaper, we have to just organise a "Signature Campaign" for it.

No worry for expenses towards re-election and the advantage of having a disciplined minister who will have to dance to the tunes of the voters.

But it is not acceptable for the vested interests of not having the entertainment material like, "THE DIRTY PICTURE"!

REPLY

Rakesh

In Reply to Rajkumar Singh 5 years ago

Reject him and elect whom?

Rajkumar Singh

In Reply to Rakesh 5 years ago

Many options are there. But if I had to choose, I would have elected you.

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