Union Finance Minister Nirmala Sitharaman presented the full budget. The government is confident that it has passed the litmus test of the coalition government with this budget. We will not discuss what kind of ruckus the opposition created in Parliament 24 hours after the budget was announced and what kind of serious allegations were leveled against the government. We will discuss the monetary policy meeting of the Reserve Bank of India after 12 days. The litmus test of which will be held between August 6 and 8. After which the common people will know whether the country’s banking regulator will grant relief to the common people on loan EMIs or not?
This question also gains importance because the Reserve Bank itself has given the highest ever dividend of Rs 2 lakh crore to the government. At the same time, the entire public sector i.e. government banks in the country have given dividends worth billions of rupees to the government. In such a situation, why is the RBI unable to provide relief to the common people on loan EMIs now? What is special is that while the Economic Survey expressed concern over the country’s inflation, it was highlighted while presenting the budget that despite all the concerns of the global supply chain, inflation in the country must remain above the target.
The interesting thing is that except for the month of June, the inflation figure remained below 5 per cent for three consecutive months. Whereas, due to food inflation, the country’s inflation touched the 5 per cent level in the month of June. In such a situation, shouldn’t the common people expect the RBI to get a relief from high interest rates after keeping them frozen for one and a half years?
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Before we proceed further, it is important to understand that last time, in the month of June, the RBI Governor himself had said that the geographical and economic situation of every country is different. This time, he emphasised that whatever decision the RBI takes with regard to policy, it will be taken keeping in mind the domestic growth and inflation figures. He said that in that context, India has always been like the US Federal Reserve with regard to following the policy rate.
It clearly means that a two-day long monetary policy meeting will be held on August 31. In such a situation, if the Fed keeps the policy rate frozen this time too, then there should not be any impact on the RBI governor. On the other hand, irrespective of whether the US makes any change in the Fed policy or not, the pressure of the people of India has started being felt not only on the RBI but also on the government of the country. A slight hint of this can be clearly seen in the country’s budget as well.
What is special is that the growth path that the RBI intends to follow, that thinking of the government, was not at all seen in the Economic Survey. At the June meeting, the RBI’s estimate with respect to growth in the current financial year was 7.2 per cent. On the other hand, as per the Economic Survey released on July 22, the country’s economic growth in the current financial year may range between 6.5 and 7 per cent. If the average is taken, the country’s growth may be 6.8 per cent, which is 0.4 per cent lower than the RBI’s estimate. In such a situation, the RBI will be in a dilemma whether or not it will change its estimates as per the estimates of the Economic Survey.
If we talk about inflation, then it was estimated for the second quarter of the month of June. According to the RBI, the country’s inflation could reach 3.8 percent in the second quarter. Almost a month of the second quarter of the financial year has passed. It may be 4.6 percent in the third quarter and 4.6 percent in the fourth quarter. In such a situation, it is clear that the country’s inflation rate may remain at an estimated 4.5 percent. This clearly means that the RBI does not have to fight inflation based on its own data. In such a situation, the people of the country can expect to reduce the EMI loan from the RBI MPC.
At the same time, we should not forget that two more hints have been found in the month of June. In the month of April, in the RBI meeting, only one member had given his support regarding the policy cut. The number increased in the month of June and two persons in the RBI MPC supported the RBI cut. In such a situation, this number may increase from two to four in the month of August. If this happens, then the majority among the 6 members of the RBI MPC is in favour of the policy cut, then the RBI Governor may announce a policy cut. The most important thing that was seen was that in the RBI MPC meeting there were hints of taking a liberal stance regarding policy rates in the coming months.
In such a situation, we must not forget that from May 2022 to February 2023, the RBI’s policy rate was increased by 2.50 per cent. Since then, seven RBI MPC meetings have been held. Even after that, RBI MPC has not made any changes in the interest rates. At present, the RBI’s repo rate is 6.5 per cent. The reduction of which can start from 0.25 per cent. It will be interesting to see what the RBI’s stance is in the three-day meeting to be held in August after the budget.
