The Reserve Bank of India’s monetary policy is only a small part of India’s economy. A tighter rate regime only corrects the loan portfolio and helps the industry that has strange ways to have the maximum benefits out of the government’s policies, in any regime. It pressurise governments to listen to it and believe that it alone can add shine to the economy. It did it with the UPA and is repeating with the NDA.
 
Once again RBI paused the rate button even realising that inflation despite the low rate is a greater malaise preventing growth acceleration. The RBI being in Mumbai gets a magnified view of the industry. By the same token, it can be said that it may not have a full view of the economy of the North-East.
 
Agriculture still provides livelihood to 70 percent of the people of the N-E. In Sikkim, the figure is 89 percent, and in Mizoram 51 percent. It is as uneven as the region is. It should also be realised that except for tea, bamboo, and some oil, there is hardly a major industry there. Conflicts, inter-state, and intra-state are high.

The burning Manipur highlights it.  It remains a quagmire how it impinges on India’s growth story. The NDA-I under Atal Behari Vajpayee had laid special emphasis on the region resolving a major part of the Naga issue. But a tribally divided society is complex.

Nobody is sure whether the RBI takes a holistic approach to assessing India. The monetary policy pegs its eyes on four percent inflation, its prime target that it believes would correct many ailing issues. The figure is certainly away from reality as the base of inflation had been high. 

Till August 16, 2022, India had galloping wholesale inflation of over 10 percent for 16 months touching a high of 16.63 percent in May 2022, in June 15.18 percent, and 13.93 percent in July. The Wholesale Price Index (WPI) started rising in 2018. Retail inflation added to the fire. In 2022 fuel and power inflation resurged from 40.38 percent in June to 43.75 percent in July.
 
The high base effect has kept the prices abnormally high and the RBI even hoping it to come down at even four percent means an uncomfortable price regime. The concern is legitimate as it affects the overall cost of living and consequently growth.
 
The RBI Annual Report released on May 30, suggests the Indian economy is poised to touch greater heights. But a perusal of RBI tables does not support what it professes. RBI Governor Shaktikant Das says, “Let me emphasise headline still remains above the target and being within the tolerance limit, 2-6 percent, is not enough”.

He adds, “Geo-political tensions, uncertain monsoon, and international commodity prices like sugar, rice, crude oil and volatility in global financial markets pose upside risks to inflation”. It means he foresees consumer inflation to cross the latest target of 5.1 percent.

There are contradictions and implications that the RBI report does not even dwell on.  It does not highlight the declining share of industry in the economy, the fall in FDI, the dangers of poor focus on education, and the consequences of spending too much on subsidies.
 
The RBI also says that the GDP growth can be misleading. As Kaushik Basu points out, India’s growth at 7.2 percent in 2022-23 looks good but disappoints as in 2020-21 growth was -5.8 percent, one of the world’s lowest, causing the baseline from where India’s growth is computed to drop. It notes that India’s annual growth over 2020-23 is 3.28 percent – too low for a nation with so much of talent.
 
It also observes the fall in export growth, despite the import of components for assembly and export. The RBI finds worrisome the slippage in gross capital formation. It is concerned about investment not happening, leading to continued and worsening unemployment.  The figures RBI refers to are from the National Statistical Office (NSO).
 
The RBI has also tightened the norms for loan guarantees. It has to have cash components. It is an indication that in the prevailing circumstances, slippages could be high. Thus its optimism on real estate recovery is guarded.
 
On a previous occasion, the RBI has obliquely called for caution on high infra spending and a burgeoning debt portfolio. It said states are showing warning signs of building stress, and the five most indebted ones — Punjab, Rajasthan, Bihar, Kerala, and West Bengal — need to take corrective measures by cutting down expenditure on non-merit goods.

State finances are vulnerable to a variety of unexpected shocks that might alter their fiscal outcomes, causing slippages relative to their budgets and expectations, said the RBI article, prepared by a team of economists led by Deputy Governor Michael Patra. It noted that the state finances are exacerbated implying severe caution.
 
Largely the approach is to have higher growth through the building, demolitions, road, rail, and other infrastructure spending mostly on the mainland. The RBI wants moderation in it as it hints that a high debt cycle may not be in the interest of growth. 
 
There are regional variations. The North-east contributes to only 2.8 percent of India’s GDP, which is scratching the surface of its immense potential. The region’s strengths are also its unique culture, reverence for nature, and pristine beauty.
 
Conflicts are not uncommon among states and tribes. The recent Manipur situation speaks volumes in the sensitive region that is planned to be the gateway to South East Asia. Despite the political will to integrate the region as per the Vajpayee doctrine many states remain isolated. The Kuki-Meitei violent conflicts now for over a month are having an effect on the other states as well. It is shearing the delicate socio-religious fibre.

Lack of sufficient jobs is one of the key issues bothering the minds of ordinary people. The conventional method of GDP -the sum of goods and services produced- as a measure of the success of the economy does not provide succor. The key issue is the well-being of the people. For India’s growth more inclusive policies are needed. People want jobs, civic facilities, and peaceful coexistence.

NITI Aayog has to chart out the path and help the RBI come out of its own pessimism. Where required all-party mediation with imaginative gestures is possible for the ruling establishment. Once this is corrected, the growth path would be smooth and in tune with the vision of 2047.—INFA