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The Monetary Policy Committee of the Reserve Bank of India (RBI) hiked repo rate by 25 basis points to 6.5 per cent, Governor Shaktikanta Das announced. The RBI has increased repo rate by a cumulative 250 basis points since May last year.
Rate hike of 25 basis points is considered appropriate at this juncture. Monetary policy will remain agile and alert to inflation.The interest rate that the RBI charges when commercial banks borrow money from it is called the repo rate.
The RBI governor noted that the world economy is not looking so grim anymore and that inflation also appears to be coming down.
RBI’s MPC decided 4:2 vote to remain focused on withdrawal of accommodative policy. The RBI also projected India’s GDP growth at 6.4 per cent for 2023-24.The Central bank has projected retail inflation at 6.5 per cent for 2022-23 and 5.3 per cent for the next fiscal.
In December 2022, the MPC hiked the Repo rate — the key policy rate — by 35 basis points to 6.25 per cent in a bid to rein in retail inflation.
The global economic outlook doesn’t look as grim now as it did a few months ago, growth prospects in major economies have improved while inflation is on a descent though inflation still remains well-above the target in major economies.
Flagging the unprecedented contractions facing monetary policy, he said: “Unprecedented events of the last three years have put to test monetary policy across the world.
Emerging market economies are facing sharp tradeoffs between supporting economic activity and controlling inflation while preserving policy credibility.
Centre urges CAG to audit midday meal scheme implementation (Page no. 9)
(GS Paper 2, Government Policies and Interventions)
Days after forming a panel to review the implementation of the midday meal scheme in West Bengal, the Ministry of Education has requested the Comptroller and Auditor General of India (CAG) to conduct a special audit of the scheme in the state, citing alleged misuse of funds.
The ministry announced its decision on Wednesday, saying that it will take necessary “corrective action” based on the audit of the CAG, which will look into compliance, performance and financial aspects of the scheme, which was rebranded as ‘PM Poshan’ in 2021.
The Ministry of Education has received reports about the alleged misuse of funds in West Bengal under the PM Poshan scheme.
Instances of deviations in implementation of the scheme have also been reported in the media. In view of the above, the ministry has requested the CAG for a special audit of implementation of the scheme in the state for the last three financial years.
On January 13, the ministry had announced the setting up of a Joint Review Mission (JRM) to examine various aspects of the implementation of the scheme ranging from “fund flow from state to schools” to “convening the meetings of district-level committee under chairpersonship of senior most Member of Parliament” in West Bengal.
The JRM was formed following a letter by West Bengal Leader of the Opposition Suvendu Adhikari to Education Minister Dharmendra Pradhan in which the former alleged “misappropriation” of midday meal funds by the Trinamool-led government.
Editorial
RBI’s unfinished tasks (Page no. 12)
(GS Paper 3, Economy)
The overall tone of the February monetary policy statement was significantly more hawkish than widely anticipated.The monetary policy committee members voted 4-2 to increase the policy repo rate by 25 basis points to 6.5 per cent.
While this increase in the interest rate is lower than the earlier aggressive hikes of 35-50 bps, the dissent this time around was stronger than observed in the December policy review when only one member had voted against the then 35 bps rate hike. It is pertinent to note that a section of economists polled before the policy had expected a pause at this review.
The MPC has also voted to retain the stance on “remain(ing) focused on withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth”, similar to its views on many previous occasions.
The earlier two-member dissent against this stance continued. While we had not expected a shift to “neutral”, there was the possibility of a tweak in the language.
For instance, the framing could have been, the policy is approaching “restrictive territory” or towards “a substantial removal of accommodation”. But, that was not to be.
In addition, the forward guidance communicated that “further calibrated monetary policy action is warranted to keep inflation expectations anchored (and) break the persistence of core inflation”.
The missing phrase this time was the need “to contain second round effects”. In short, there is a strong commitment to get inflation down to the 4 per cent target, albeit on a glide path, maybe in 2024-25.
There is, however, not a whiff of signaling a pause while assessing the impact of the rate hikes across various channels on growth and inflation.
Ideas Page
The pact’s fine print (Page no. 13)
(GS Paper 2, International Relations)
In his 2019 book, The Hundred Year Marathon, Michael Pillsbury, a foreign policy strategist, who has held positions in the US administration and Senate, says, “…not only has China’s rise happened right under our noses, but also the US and the West have helped the Chinese accomplish their goals from the beginning… For decades, the US government freely handed over sensitive information, technology, military know-how and expert advice to China.” Ominously, he adds, “The American public is unaware of the extent of covert cooperation between Washington and Beijing over the past forty years.”
If Pillsbury’s account is to be believed, the dramatic ascent of a prosperous, technologically advanced and militaristic China — leaving India far behind in its wake — owes much to the close multidimensional cooperation extended to it by the US since the 1980s.
In which case, the recent unveiling of a US-India Initiative on Critical and Emerging Technologies (iCET) comes half a century too late for India. Seen in the light of President Biden’s 2021 undertaking to transfer multiple advanced technologies, including submarine nuclear propulsion to Australia, it starkly highlights the absence of any significant offer of high tech by the US to India, despite bilateral ties, growing steadily in warmth and closeness.
There has, however, been no dearth of accords and agreements, with lofty titles, framed to enhance Indo-US cooperation in the security and technology domains. Some examples: “Next Steps in Strategic Partnership” in 2004; “Defence Framework Agreement” in 2005: the pathbreaking “Indo-US Civil Nuclear Agreement” in 2008; launching of the “Defence Technology and Trade Initiative” in 2012; accord of “Major Defence Partner” status by US Congress in 2016; and institution of “2+2 talks” in 2018.
The signing of the fourth and last of the key “foundational agreements” in 2020 was supposed to have eliminated the final impediment to closer security cooperation.
However, after nearly two decades of this pretentious “pas de deux”, all that the Indo-US “strategic partnership” had delivered was $22 billion worth of military hardware, purchased by India via the foreign military sales programme.
Counting her work (Page no. 13)
(GS Paper 3, Economy)
The issue of female labour force participation rate (LFPR) is an old one and has been extensively written about. The Periodic Labour Force Survey (PLFS) has a precise definition of LFPR: “LFPR is defined as the percentage of persons in labour force (working or seeking or available for work) in the population.”
LFPR is the percentage of the population (in working age-groups) that is employed, or is looking for work, but is unemployed.
Discussions about female LFPR have focused on some inter-related issues.
First, why is female LFPR low in India, compared not only to developed countries but also several countries in East Asia? Second, has female LFPR declined over time? Third, if it has declined over time, what are the reasons? Fourth, do these answers vary, depending on state, rural/urban status, slice of society and sector? Fifth, to the extent there is a gender gap in LFPR, has it increased over time? Positively correlated with development, both male and female LFPR should be higher.
That proposition is axiomatic and there can be no debate about it. For instance, in 2015, McKinsey Global Institute published a report titled, “The power of parity: Advancing women’s equality in India”.
This argued, if India achieved gender equality, there would be 700 billion US dollars of added GDP in 2025 and an increment to annual GDP growth by 1.4 per cent.
There are other such studies with other such numbers. The numbers can always be questioned, on grounds of assumptions used to arrive at them, but not the contention.
Explained
When words are expunged from the records of parliament (Page no. 15)
(GS Paper 2, Polity and Governance)
Portions of Congress leader Rahul Gandhi’s speech delivered in Lok Sabha on Tuesday (February 7) have been expunged — or removed — from the records of Parliament by the orders of the Speaker.
The expunging of certain words, sentences, or portions of a speech from the records is fairly routine procedure, and is carried out in accordance with laid down rules.
The decision on which parts of the proceedings are to be expunged lies with the Presiding Officer of the House.
Under Article 105(2) of the Constitution, “no Member of Parliament shall be liable to any proceedings in any court in respect of anything said…in Parliament or any committee thereof”. However, MPs don’t enjoy the freedom to say whatever they want inside the House.
The speech of MPs is subject to the discipline of the Rules of Parliament, “good sense” of its Members, and the control of proceedings by the Speaker.
These checks ensure that MPs cannot use “defamatory or indecent or undignified or unparliamentary words” inside the House.
Rule 380 (“Expunction”) of the Rules of Procedure and Conduct of Business in Lok Sabha says: “If the Speaker is of opinion that words have been used in debate which are defamatory or indecent or unparliamentary or undignified, the Speaker may, while exercising discretion order that such words be expunged from the proceedings of the House.”
Rule 381 says: “The portion of the proceedings of the House so expunged shall be marked by asterisks and an explanatory footnote shall be inserted in the proceedings as follows: ‘Expunged as ordered by the Chair’.”
Reading RBI’s policy review (Page no. 15)
(GS Paper 3, Economy)
The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) on Wednesday raised interest rates further in an attempt to bring inflation back to the target level of 4%.
Monetary policy essentially deals with the supply and cost (interest rates) of money in an economy. The RBI’s MPC meets every two months to assess the state of monetary activities, and may tweak the repo rate — the interest rate at which the RBI lends to commercial banks — in a manner that reduces price fluctuations in the economy while keeping the inflation rate (the rate at which the general price level in the economy grows) at a reasonable level.
As a general rule, when RBI is more concerned about containing inflation it raises interest rates (thus depressing economic activity), and when it wants to stimulate growth it brings down interest rates.
One, it came just after the presentation of the Union Budget, which is the most important fiscal policy document of the year.
Two, it came at a time when Indian markets are roiled by uncertainty in the wake of the Hindenburg Research allegations against the Adani Group and the resultant upheaval in Adani stock prices.
Three, central banks around the world are currently either slowing down the pace of interest rate increases, or even considering halting monetary tightening.
Lastly, this was the last review of the current financial year (2022-23) and as such provided a good opportunity to understand how the RBI saw the Indian economy panning out in the next financial year (2023-24) the Budget for which has just been presented.