Dear High Inflation, Rest in Hell.

Prof. Srinivasan’s monetarist history lesson tells us that to control inflation either tax rate should be hiked or monetary tightening, or both. He is asking Indian authorities to do what British did in early eighties. Though his prescriptions seem weird, yet this is exactly the Government of India (GoI) should do now. Although the chance is very less that the government of the day would pursue such vote-killing policies, yet this will benefit the country for sure. Why such tough prescription? Though we both have the same prescription, yet my reason is bit different from Srinivasan’s.

First, i discuss why this prescription looks weird and then tell why this serves better the economy.

1.      We need to ask what kind of inflation Britain reduced: demand (originated) inflation or supply (originated) inflation? To counter supply-shock in the 1970s Britain used monetary and fiscal policy to stimulate economy. Hence, disinflationary policies worked.

2.      Srinivasan seems to attribute this inflation to excess demand. A measure of excess demand is “core inflation”. It is the non-fuel non-food inflation and is almost in control.  Food inflation is the biggest contributing factor to high inflation.

3.      How can we control supply inflation with a monetary tightening? We know monetary policy can cool down only core inflation. Optimal monetary policy should stabilize the inflation in sticky prices, so central banks should not try to counteract commodity price inflation or deflation.

4.      If he is prescribing for either a tax hike or severe monetary tightening, then the economy may go to hell again. We know that both the Euro area and the US are not out of woods yet. In fact, in a recent IMF speech by former US Treasury Secretary Larry Summers, endorsed by Krugman, predict that the US economy may be slipping into a “secular stagnation”. If that is the case, then our exports demand would remain weak for long time. In this case, it is not right to step up the monetary brake now.

5.      What is holding back India growth story: high inflation or governance pause on reforms, or depressed advance economies? To be fair, each accounts for one-third of the slowdown.

6.      Prof. Srinivasan says deficits crowds out productivity-enhancing private investment. Of course, it is true. But we need to ask by how much. It is the reforms and scams that has choked investment sector. Availability of credit is indeed a factor. But this is not a big factor compared to government inaction. We should not also forget that in this period government inaction forced India Inc to go abroad. Indian industrialists Ratan Tata, Kumar Mangalam Birla, Anand Mahindra spoke to media venting out their anger on government. Deepak Parekh puts it nicely “Earlier, investing abroad seemed to be a risk diversification but the current impasse (in governance) makes it a necessity for companies to look elsewhere,"

To put it in one sentence, RBI’s fighting has not been successful and that is because the government is not cooperating. The question that automatically follows is how logical is this to argue that RBI should step up its effort to rein in inflation.

In the present circumstances it is a fair assumption that growth is going to remain sluggish throughout the next year. What shape the economy will have next year depends upon the General election to be held next year. If a clear mandate comes, it may help the policy making faster and investors would gain confidence and investment would rebound. But if we get a fractured mandate economic uncertainty will rise, thereby negatively affecting key macroeconomic variables. And given coalition politics and exit polls, it seems that we may be heading for a not-clear mandate.

The recent loss of Congress party in all the four assembly elections heightens this uncertainty. One impact of this loss is that the reforms in the Parliament would be stalled till the next Central government is formed. Investors fear that bills passed by this government may be overturned by the next government. So, a rational businessman would prefer to wait and watch.

Both inflation and inflationary expectation have been sticky due to both RBI’s “Boiling Frog Syndrome” approach and GoI’s spending binge. We also know that success of monetary policy is contingent upon fiscal policy. So, both should go hand in hand to achieve inflation reduction objective. While the GoI is shedding crocodile tears for high inflation, RBI has been fighting a lone battle since March 2010, without much success. As of now GoI has spent 84% of expenditure sanctioned in the Parliament and that too without accounting for fuel subsidies! It suggests that GoI is less serious in containing inflation.

Further, it is an election year. And the recent loss may prompt the central government to go for more vote-wooing sops and freebies which implies more expenditure. So, the government might be tempted to spend more. Given that we can’t have a US-style drama of “government shutdown” fiscal deficit is bound to exceed its target in this fiscal. Neither a huge cut in the expenditure is possible, as Finance Minister Chidambaram assures us nor a up in the tax rate is possible. These factors translate into higher inflationary expectations, and thus, higher inflation. This will surely jeopardise RBI’s efforts to bring down inflation to moderate levels.

So from the above discussion we find that four things warrant for such a tough action. They are: (1) domestic slowdown will persist for at least one year, (2) central government has spent 84% of its expenditure sanctioned for this fiscal, (3) this year being an election year, central government might be tempted to spend more, and finally the advanced economies will be weak for at least one year.

But the question is how to kill inflation and its cousin inflation expectation. So far RBI is not successful in its war against inflation. Former RBI governor Subbarao admitted that it was this “baby-step approach” of the RBI that failed to control inflation. So, RBI should tell the government clearly and loudly that it is serious to bring down inflation and it would keep the interest rate heightened until central government pursues prudent fiscal policy. More importantly, if it wants to get victory against inflation it needs to abandon its “piece-meal approach” of hiking repo rate by 25 basis points each time. That means RBI can go for an all-out attack on inflation; it needs to hike interest rate sharply. Rajan has been less tough on inflation than he speaks. And if he continues to follow his predecessor’s legacy, it would land the Indian economy no where: neither inflation will cool down nor growth will peak up.

However, the reality, as emphasized by Srinivasan is that monetary policy is going to be of little help unless and until fiscal policy shows discipline. But fiscal indiscipline is the order of the day. This is why i am less confident that rise in interest rate will reduce retail inflation. Yet it is worth trying, given that growth is going to remain sluggish. Hence, pursuing such anti-inflationary policies would ensure minimal output loss (that is, a small sacrifice ratio). Hence, this is the best time to reduce inflation. 

Quality of Education in Government Schools: Thinking Beyond Government

Amarendra Das wrote a post on declining quality of education in government schools. Its a great article. I mostly agree with him. Coincidentally, 10 months ago, i was analysing state government FINANCE ACCOUNTS data at NIPFP. I was surprised to see Odisha government is running a NEGATIVE FISCAL DEFICIT since FY 2005-06 continuously! Then in March/April we got shocking news that teachers on strike in front of the Odisha VIDHAN SABHA for a higher salary were beaten up and one died. It led me to ask why the hell Odisha government is not filling up its teacher vacancies when it is taxing more than it spends. So, i initiated a discussion with Pratap Mohanty, Jajati Parida, Sivananda Nayak in Delhi about using fiscal surplus to fill up the vacant posts and stopping the practice of hiring Para-teachers. Well, we could not reach a decision. I am glad that he also argues in that line. I believe this argument has to be effectively pushed up so that the teachers are aware of this and hence, they can better debate with the state government.

Well, coming back to the issue i found his central thesis is that there is acute shortage of teachers in Odisha and hence, it affects quality of education. Since, the state government does not fill the sanctioned teacher posts, the ultimate blame goes to the state government.  Yes, you are mostly right. However, he did not talk about quality of teachers and how it affects teaching and quality of education. Don’t you think teachers have fair responsibility in the quality degradation in our government schools? Having undergone B.Ed training I will try to figure out as to where the problem lies. Nonetheless, your points still remain valid.

Shortage of teachers imposes three problems:

(1)     Per-capita student attention reduces.

(2)     Per-capita teacher responsibility rises:

(a)     Other government responsibilities:  Mid-day meal schemes, survey of BPL households, Census, Voter card, PDS, and things like that. Fewer teachers mean more responsibility on these teachers.

(b)     Subject substitution rises: That is, a history teacher will be forced to teach math and a math teacher will be asked to teach language subject as if teaching language is the easiest thing in this world! We know this is actually bad.  Why? Neither do they have expertise on other subjects nor do they have that much enthusiasm and nor interest to teach other subjects. In the end, the students suffer.

My take is on this issue is the following.

1.        We need to properly teach students at teacher training schools (i.e., B.Ed, and C.T. colleges). For example, students are asked to take two optional subjects in their B.Ed training. (Honestly, i don’t know why. My guess is that these two subjects they will be teaching throughout their career). In my B.Ed course i opted for Geography and English. See none of these subjects are my core subjects. I have studied economics and Pol. Science. How will i teach geography and English? Well, if i devote special attention to it, if i arouse interest in it and if i am given well training at the training school, then i can teach these subjects with ease and more importantly, make it interesting. But the risk is that i know that once i become a sarkari teacher, nobody can throw away from my job irrespective of my performance as a teacher. If this is true, what guarantee is there that i will learn geography and English properly and teach students well?

This takes me to ask this question: are the instructors at training schools well equipped to teach different school subjects like geography, English, and so on? I don’t know. My personal experience suggests that we have not-so-good instructors. Yes, there are good instructors to teach core subjects in Education training like philosophy, psychology, and evaluation; and measurement and so on. Hence, i think we need to hire instructors at training schools who have done at least MA and NET in school subjects. That is, one must have at least MA and NET in geography to be a geography instructor at training schools.

The other important thing is that we need to change the current policy of B.Ed and CT selection process. In our time the selection is based on upon the career marks. The current process is entrance tests. My own view is this: if a training school has 100 seats, it must select students from all school subjects like science, math, English, language, geography and history. So, a history student with a formal training will definitely teach history better in school.

2.        My second point is that our teachers need to change the way they teach, and their approach to teaching and curriculum need an overhaul change. Teachers need to be accountable and we need an outcome oriented education system.

3.        One standard argument given is that teachers get low salary; hence, they don’t have adequate incentive to teach properly. And this makes them to look for other income earning avenues. Yes, this argument is fairly true. A higher salary would attract best students.

But if that argument is true, will we find government schools having all sanctioned teachers and getting full-scale salary to perform better than schools NOT having all sanctioned teachers and para-teachers? We can test this hypothesis. But my question is don’t they know before joining the teaching job that they would receive a meagre salary? Why do they have to invoke this low salary when asked about their sub-par teaching performance? To me this makes no sense.

4.        Sometimes government appoints primary teachers before election (to use as a vote bank) and (Political) party people having dubious education is given appointment. Once they join as teacher, they are sent to training schools. In this case, how can we expect quality education?

5.        And lastly, it is a sad development that we now observe both fiscal surplus and para-teachers exist at the same time. There is no valid reason for the Odisha government to hire para-teachers when it is running surplus budget.

In conclusion i would say both Odisha governments and school teachers need do a lot more thing. Odisha government needs to fill up vacancy posts and for teachers, they need to change the way they teach, the way they are trained and the approach to teaching need an overhaul change. Teachers need to be accountable and we need an outcome oriented education.

Ban on 0% EMIs demystified

The RBI has banned 0% EMIs for purchase of consumer durables. 

So what is the reason? This is what the RBI said:

“...in principle, banks should not resort to any practice that would distort the interest rate structure of a product as this vitiates the transparency in pricing mechanism which is very important for the customer to take informed decision,” 

It continues:

The very concept of zero per cent interest is non-existent and fair practice demands that the processing charge and interest charged should be kept uniform product or segment wise, irrespective of the sourcing channel, as such schemes only serve the purpose of exploiting vulnerable customers.

Yes, it is a well-intention, consumer welfare increasing step. Kudos to the RBI. (Not) Everybody knows that there is a hidden cost behind the seductive offer called 0% EMIs. Normally, banks pass interest costs of the purchase amount to the consumer.

But is this the only reason? Well, seems hard to believe! We would get a clear answer if we ask why firms offer 0% EMIs. Firms use various strategies to boost consumer purchase. In a slowdown like this, (not all) firms use 0% EMIs as an aggressive strategy to increase their sales. Hence, it seems that the proper reason of this ban is to reduce sales and thus, inflation. Well, to what extent inflation would decline depends upon it weight on the WPI basket. The weight of consumer durables is 5.8%. The Economic Survey 2012-13 (see figure 4.6, page 86) shows consumer durables inflation is falling from around 11% since August 2011 to around 5.5% as of December 2012. But it is still well above RBI’s preferred zone. It is reported that there is a 34% jump in bank loans for buying consumer durables between July 2012 and July 2013.

Sales of consumer durables also depend upon interest rate and it is highly interset sensitive. So the elevated interest rates helped reduction in consumer durables inflation. May be RBI expected it to decline further and faster. Hence, this ban. This to me appears as a fight against inflation. Well, i mean by this ban RBI tries to reduce debt-financed consumption. Remember that RBI has been fire-fighting to reduce inflation since March 2010. Yet, the success is far is limited. So, this is another instrument used by RBI to bring down inflation.

So what will be the impact?

Durables sales will fall. By how much? We can’t say unless we have data about the share of 0% EMIs sales in total sales. The causalities would be cell phones industry and auto industry.

Was Rajan Unpredictable? A comment on Rajan’s maiden monetary policy statement (MPS)

Finally, the wait is over. So also all the euphoria surrounding Rajan’s first monetary policy statement (MPS). Within two minutes of his speech, the exhalation evaporated. So what sin he committed? To anchor inflationary pressures he has raised the repo rate by 25 basis points. That implies he’s there to kill inflation, defend rupee. In a way he has impeccably taken forward the baton of fighting inflation from his predecessor. Since he has expressed concern for inflation these policy measures should not be a surprise at all! His policies imply that he is serious to raise domestic household saving, thus reducing investment on unproductive yellow metal and he shares the same pain (which poor people bear and in one of his speech Subbarao declared that he is there to represent poor people’s unspoken demands) that his predecessor felt. Rajan may be the new Paul Volcker.

Couple of things stand out from his speech are:

v  His decision to raise the repo rate by 25 basis points is based on high inflation and low household financial saving. Thus, he emphasised the later point warranties an increase in the repo rate.

v  He told the repo rate hike affects only 0.5 per cent of the entire borrowing of the banking system. Stated otherwise, it is not going constraint credit supply and liquidity. This is a very important point which has been missed in the debate and discussion on monetary policy since Governor Subbarao was habituated with rising interest rates.

v  At present interest rate is not consistent with inflation, and also inflationary expectations and suppressed inflation stemming from depreciation.

v  He was unmoved by the Fed’s decision to hold taper off. The justification he offered is that sooner than later the Fed will resume bond purchases. Once it does rupee would feel the pressure again. And suppressed inflation would unfold. Thus, it is better to be prepared by bringing down inflation till then.

v  Finally, he argued that these measures (reducing MSF rate by 75bps, raising the repo rate by 25bps to 7.50% and partial roll back of daily CRR (Cash Reserve Ratio) balances maintained by banks with the RBI from 99 percent to 95 percent) will reduce the cost of bank financing substantially while allowing us to take an appropriately precautionary stance on inflation. In his words, “we must use this time to create a bullet proof national balance sheet and growth agenda, which creates confidence in citizens and investors alike.” It is true that cost will marginally reduce since the MSF has been reduced marginally. It is also true that liquidity will also ease and credit supply would rise.

But the question is: is this enough? It seems the economy is heading towards a long winter. By drastically reducing rates now it should have revived the economy. We must remember that reduced inflation not only resulted from elevated interest rates since 2010 but also significantly from the downturn as it compressed purchasing power.

So, where did the RBI go wrong?

Core inflation is falling. As of July 2013 core inflation excluding food and fuel was 2.8% while WPI headline inflation was 5.8%. Surely CPI is much higher. Both WPI and CPI are above RBI’s comfort zone. The fact that core inflation has reduced implies that demand pressure has also dampened. It is also corroborated by falling manufacturing investment data. RBI is now eying to bring down headline inflation, especially CPI inflation.

He falls in to the trap of Subbarao’s “25 basis points doctrine”. Subbarao was much criticised for his baby-step approach to tame inflation by hiking repo rate marginally every time. It was not enough to kill inflationary expectation. This is why both inflation and inflationary expectation stay high, though responding to RBI’s call lately; with a lag of after 36 months. Given this “very slow” decline in inflation, when will inflation come to below 5%? It may take another 18-24 months, given coming state and general elections. How much cost it has inflicted to the economy?

The growth rate of money supply (M1) has fallen from 18.23% in 2009-10 to 5.85% in 2011-12. Such a drastic reduction in money supply is surely a perfect recipe for an economic disaster. The question is how long he will fight inflation and when will he ease increase rates.

Once inflation reduces to RBI’s tolerable limit, RBI will ease interest rates. Taking account of this fact, and given that very large lag of monetary policy transmission, economy is expected to remain sluggish for next 2 and half years.

Rajan said “the repo rate hike affects 0.5 per cent of the entire borrowing of the banking system”. That means he says repo rate hike does not matter much since it does not constrain credit supply and liquidity much. If he is saying that raising interest repo rate only affects less than 1% of the entire borrowing of the banking system, then why is he hiking interest rate. Anyway it won’t matter much. That means transmission policy is very weak.

Media has already reduced his status from rockstar to rock. Surely, Rajan will not be unfazed by this. But one hopes that he will be unfazed by the coming prolonged slowdown resulting from RBI’s inflation madness. Only time will tell to what extent he will be able to reduce supply-constrained inflation and at what cost.

Why we should have grade inflation data?*

Think of this. You are a HR manager of a reputed company. You want to hire 5 candidates. But you have received 200 applications with their vitas. How would you select? Well, you might conduct a written test and PI or GDPI. But you don’t have time either to check 200 answer sheets (even if it is MCQs) or you do not have patience to conduct interview to all applicants.

In that case it would be prudent to first shortlist a handful of applicants and then conduct written test and PI or GDPI. Again, the question comes: how would you shortlist. On the basis of marks obtained throughout the career? Not a good idea. Why? Of course there are other ways that those HR managers know better than me. Here i will say why career marks are not a good indicator of talent.

Consider this. It may happen that in some places marking/grading is very tight and in some places it is liberal. Students in the liberal region will consistently secure good marks compared to students in the tight region. It does not imply that students in the tight region are bad. Then in that case, it may difficult to shortlist for a vacancy. That is why it is important to create a database of grade inflation. It is available for the US. Through this WE CAN PREPARE A REAL GRADE DATA.

There are other ways to select a candidate.

v  Job-specific qualification and experience

v  Look at her extra-curricular activities, leadership qualities and team learning

v  Flexibility, that is how has been her assignments changing

v  Work Ex

v  How frequently that she has been changing companies, or durability in the job

v  Previous salary

v  Awards and achievements in her academic career and working career

v  Past character reports

So judging on these parameters rather than depending on mindlessly on marks selects the best candidates. What do you think?

*Actually, this is a discussion between a MBA student and me. He asked me how i should select candidates from their vitas. He also mentioned lot of parameters mentioned above. Then, i realized we should prepare a grade inflation data base.

Update
One reason why might have grade inflation is this.
Suppose the examiner has to evaluate 100 papers. She would evaluate properly; implying a student gets marks correctly. No gain no loss for the student. Marks worth effort. Now suppose the examiner has to evaluate 500 papers. She might not give the sufficient time that a proper evaluation of an answer script requires. So, not to get any complains from students she would try to please all students by giving more than what they deserve. As a result the we may see grade inflation. This is also same for TAs.

Why Politicians do big scams?

Why do we see politicians when caught in scams and scandals involve big sums? I have found 4 reasons. If you have any you can suggest.

They consider election expense as an investment. Some borrow (from their own species) to finance election expense and some are sponsored by businessman; some spend from their own wallet.

1.      Since election expense is an investment, they must get inflation- and risk-adjusted return.

2.      Further, they have to make money for the coming election.

3.      Once they are involved in illegal practices, this incentivises them to go for big scams and and (Indian) law encourages it. After all, the punishment is same! You plunder 100 crores or 1 crores, the law treats you the (roughly) same. This is the Principle of Equality! What a fucking joke?

4.      Then, when one politician is involved s/he tries to allocate risk. That is, s/he will try to bring others (big politicians and A-Class officers) in the scam.

Next time when you find a politician is caught red-handed think of these reasons mentioned above.

Update:
After watching the Hindi movie "Andolan", i have to add this point also.

In theses times of coalition politics, politicians are unsure  of whether the Coalition government will survive for the next 5 years. So they charge a hefty risk-premium, that is, to engage themleves directly or indirectly in looting the country.

The Invisible Paradox: Does Self-maximization Always Lead to Maximization of the Self-objectives?

Adam Smith, the father of economics, believed that State should intervene less in the functioning of the market and also in the economy. His idea is this: because every individual tries to maximize her objectives, in the aggregate the nation’s objectives or welfare will be maximized. This is fine. But then we know that due to presence of market imperfections like information asymmetry and market failure, and coordination problems, individuals’ maximization of objectives don’t guarantee us a maximization of the State objectives. (Though in a different context, we must not forget that how maximization of individual objectives has landed the world in a great crisis). The observation that I am going to put forward here is similar to the Paradox of Thrift of Keynes. Anybody familiar to the electronic E-mail world knows that we have a chat option, where we can talk passively with our dear ones. Now suppose I observe that in my chat list, at least 20 persons are available to chat with. And for the sake of argument, say on average at least 5 persons chat with me ever day and each for at least 10 minutes. So being a utility maximizing agent, I would like to minimize the disturbance, while ensuring that I also maximize my utility from the chats. So my objective function is to maximize utility subject to time constraint, where my variables are number of persons available for chatting and time per each chatting. We can work out what will be the optimal number of chats. But let’s not go to the quantitative aspect, for it will not tell where I will get maximum satisfaction from. By this I mean that I can get maximum utility from chatting with Mr. Y rather than say Mr. X. Hence to account for this aspect what I will do is to exercise the “invisible” option, for it allows us to know who is available for chatting and we can be selective here and we can chat to whom we wish.

So the question is whether this action will maximize my utility maximization objective. The answer is no. Why? Let’s put one assumption that every individual has ego and is also rational. Now suppose Mr. Y observes that I am doing this. Because she is rational has ego, she will do this. If everybody in my friends list does this I can’t maximize utility from chatting, for my mail account will show everybody is invisible. Hence, we see that everybody’s objective of maximizing utility from chatting landed them a loss of utility. So what is the best solution if I want to get maximum satisfaction from chatting? I should be always available for chatting while admitting candidly that I am unable to chat with Mr. Y, if I don’t want to chat with that guy or due to other reasons.

What do u think???

How to curb Coolie's Monopoly Power at Railway Stations?

We all travel in trains. If you have luggage you normally take the help of a Coolie, that is, the luggage pickers. And you know how do and how much they exploit passengers. The exploitation is more if you are alone and if you have couple of heavy-weighted luggage bags. You have no other way than to surrender yourself before them. They also know this. Like couple of dogs tugging at a bone, couple of coolies will surround you to pick up luggage form you. No doubt they are doing a great job. Imagine how you would handle so many luggages in big railway stations.  So, they have an upper-hand in bargaining. But unlike the dogs tugging at a bone (who fight each other for that piece of bone), here collies work like a sophisticated cartel; uniform price and better coordination among them. Just Like OPEC. For example, if you have two bags and you want to go platform no-4, coach no-3, and the distance from your platform to the place of bargaining is 1 K.M, then no matter how many coolies you ask, you would only hear one price.

So what determines price? How do they charge? In other words how do they fix that price, on what basis? I guess two factors play a major role. The number of bags (implicitly the weight) and the distance from your platform to the place of bargaining.

So to curb the monopoly power we can install weighing machines or a machine that tells you the distance to the coach position and weight of your luggage. Price will be fixed accordingly. Further, a rate will be fixed in night times and rain time. I think this would reduce the monopoly power. And it is good for both passengers and of course, for coolies. So we don’t feel cheated.

On Fiscal Indiscipline

Finally, the cabinet has approved revival of a sinking ship that is Scooters India (SIL). The government would put Rs 200 crores to revive the company. That means a part of the hard earned money form disinvestment and spectrum sales would be invested in a dying company. 

It showed some seriousness in September to bring down fiscal deficit in. In February it forgot the responsibility! Since 2002-03 the SIL is making losses. Hence in March2009, it was declared sick.Why this inconsistent behavior of government? 

Further, it is believed that Air India is asking money form the government. Government biggies like Air India, BSNL, MTNL are running losses. Yet the government wants to infuse life to these companies by throwing public money. Why does government want to do it?

Why is government competing with private players to produce the (private) goods that the private sector can happily supply at a competitive price? Whose interests does it serve? Simply, it is bad economics combined with vote-bank politics. What is surprising is that Prime Minister Manmohan Singh is keen to revive this company. See my earlier posts (here here) on why we should not bail out Air India and why the government should stay away from telecom business.

It is worth asking what is the role of government, in today’s world? It should create a conducive atmosphere favorable to the private sector. A business friendly environment where private sector can grow hassle-free. That means the government should provide basic necessary infrastructure goods where it is under-supplied by the private sector. Furthre, government should also provide merit goods like welfare schemes since a major section of the population live below poverty line. In these cases if the government ruins on deficits (fiscal deficit) it is justified. The argument for deficit is justified when investment in such projects lead to rise in capacity addition and raises productivity.  See this excellent post by Rajan.

So, what message does it convey? It is not serious in bringing down fiscal deficit. Remember that RBI’s policy rates are conditional upon how serious is the government in correcting its fiscal disorder. Such half-hearted efforts at reducing fiscal deficit may provide a wrong signal to the RBI. Further, if agents (household) are rational then it would get reflected in higher inflationary expectations which is again, key to central bank’s policy moves.

Please somebody tell the government not to pursue such bad economic decisions. Should somebody remind the government that it better serves the people by providing an enabling atmosphere where private sector can grow.