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A BELOW PAR monsoon has got the RBI into a flap with its Annual Report 2001-02 going back on the initial prediction of a 6-6.5 GDP growth for the current year. Could not the central bank have waited till end-September? Did it need to retract when it could have set up growth pointers to contain the negative drag of a drought? Years ago, it was common for the RBI and the Finance Ministry to panic at cloudless skies. But, today, when the economy's fundamentals are strong (by RBI's own admission), the central bank could have flagged fresh growth incentives.

Year-on-year wholesale price inflation has dipped to 2.7 per cent as on August 2, from 5.5 per cent a year ago, but consumer indices are high on mark-ups in prices of grain, petro products and housing. Reserves at over $60 billion are comfortable, but the RBI would like a "two-fold increase" in the Tenth Plan to finance an average current account of about 2.8 per cent of GDP. The IMF prefers greater flexibility in the exchange rate, and the RBI Governor, Dr Bimal Jalan, is perhaps doing just that by allowing the rupee to appreciate against the dollar. Industrial growth is showing some signs of coming back to life going by the jump in non-food credit by nearly Rs 20,000 crore since May 3 (excluding the impact of mergers) against about Rs 6,000 crore last year. After conceding a positive link between strong agricultural activity and overall GDP growth, the RBI is quiet about the future. There are numerous yojanas, like the RIDF, and an overflowing granary to tone down the severity of a drought — comforts not available some years ago. A study by the Administrative Staff College of India says if 20 per cent of the 60 million tonnes stock of foodgrains is more than four years old and were to be written off, the banking system would take a hit. So why not supply grains free against the government-funded rural yojanas with the banks allowing the FCI to stagger the pay-in of loans? Banks offer credit to the FCI at around 11.40 per cent, based on the average prime lending rates of five-six large banks.

Surely, the interest rates can be trimmed, and the RBI Annual Report agrees that bank spreads are on the high side. The PLR of public sector banks dropped by only 50 basis points against the softening of the long-term deposit rate by 150-175 basis points in 2001-02. In 2002-03 first quarter, the PLR remained steady. However, the RBI is not sure of the interest rate scenario holding and admits to "preparing the markets" for shifts in stance though that need not be if dollar inflows continue at the current rate enhancing rupee liquidity. Dollar inflows could continue if the tax regime can be made simple and effective, the absence of which, the RBI contends, has led to a decline in the tax-GDP ratio. On reforms specifically relating to the financial sector, the RBI has listed the legislative menu but is coy about adopting a "big bang approach". That is hard to grasp when the proposed legal changes follow long debates and vetting by numerous broad-based study groups over two-three years. Probably at no point of time in India's economic history has the economy been as strongly placed as now to go for broke for an economic miracle. Strangely, the RBI Annual Report lacks the hardy confidence of the Common Man.

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