The axe ultimately fell: the RBI was forced to increase its repo rate (the rate at which the RBI gives loan to commercial banks) by 50 basis points on June 8.
New Delhi: Inflation and rising prices are the biggest enemies of any government and the Narendra Modi regime is no exception. The Reserve Bank of India (RBI) has finally stepped in to rein in inflation although the action is much delayed. RBI Governor Shaktikanta Das gave the Modi Government a big leeway by adopting an accommodative stance even while the writing was clear on the wall for more than two years.
The axe ultimately fell: the RBI was forced to increase its repo rate (the rate at which the RBI gives loan to commercial banks) by 50 basis points on June 8. This was the second hike in just over a month and more such hikes are likely in days to come.
In effect, bank loans will become costlier for the general public and those engaged in trade and commerce. EMIs will go up for home, auto and other loans taken from commercial banks. This will impact the economy in general. Even employment generation will be negatively affected. But will the RBI measures bring down the prices of essential commodities like food items, milk and vegetables? The answer is no. The common man continues to suffer. This is where it hurts the government and the ruling party. People may react angrily at the hustings. Assembly elections are due later this year in some states where the BJP has big stakes.
Senior citizens and retired persons are the worst hit. Inflation and rising prices have affected them badly even as the government turns a blind eye to their demands. Interest rates on their meagre deposits have been suppressed by the government for far too long. They are being reduced steadily ignoring their interests in the twilight years. Their plight often finds mention in the social media which rakes up issues of hefty pension and perks for retired MPs and MLAs even after a single term of five years or less.
Clearly, rising inflation hits more vulnerable sections like the senior citizens and women engaged in household chores. The government tends to ignore them as compared to other sections. They are not the vote banks in the eyes of the ruling party. The Modi government has been sensitive to the marginalised, but the rising inflation is neutralising the gains. It is a tax imposed on the poor forcibly.
The polarising issues will not take the ruling party very far in the long run. It needs to fix the problem of inflation and rising prices which alone will help in retaining power in 2024. RBI’s monetary policy pronouncements are not enough. Indeed, RBI governor gave a clear hint of it on Wednesday. He advised the state governments to reduce VAT on items like petrol and diesel which is entirely out of his purview. VAT is one of the principle sources of their income. Why will they do it?
The Central government must devise ways to control prices of essential commodities through official interventions around the country by involving, wherever necessary, the state governments as well. They will not do so only at their peril.
(Devsagar Singh is a senior journalist.)