Swadeshi Jagran Manch national co-convenor Ashwani Mahajan.
New Delhi: Swadeshi Jagran Manch – the economic wing of the Rashtriya Swayamsevak Sangh (RSS) – has hit out at the Reserve Bank of India (RBI) for not lowering rate of interest even when the inflation is down to 2 per cent, holding it responsible for the current slowdown in the economy.
"The RBI has been the major reason for the slowdown. The Monetary Policy Committee of the RBI has been working on the wrong model and faulty framework. All over the world the rates of interest come down as inflation comes down, but in India it does not happen," Ashwani Mahajan, head of the Swadeshi Jagran Manch (SJM), told IANS.
"When the rate of inflation was 10-12 per cent, the repo rate was 8.5 per cent even then. Now the inflation has come down to 2 per cent, the repo rate is 5.75 per cent," he added.
Ratings agency CRISIL on Thursday cut India's GDP growth to 6.9 per cent for FY20 on weak monsoon rains and muted corporate results. In its monetary policy review on June 6, 2019, the RBIlowered its 2019-20 growth projections to 7 per cent, from 7.2 per cent estimated in April.
The central bank expects India's GDP to grow at 6.4-6.7 per cent in April-September and 7.2-7.5 per cent in October-March 2019-20.
Slowdown signs were visible since last year, with GDP growing 6.6 per cent in October-December 2018. GDP growth slipped to 5.8 per cent in the last quarter of 2018-19 and annual GDP at 5-year low of 6.8 per cent.
The RBI will hold its Monetary Policy Committee meeting over interest rate on August 5-7.
"Lowering the interest rate is always an important policy variable. It would impact housing, automobile, demand and investment. A slight 1 per cent decline in interest rate can give a boost to the economy. During AB Vajpayee's tenure, demand was high because repo rate had come down to 5 per cent giving the leeway to banks to withdraw more money from RBI to lend, but in the whole NDA period (2014-19), the RBI missed that opportunity to give a boost to the economy in the garb maintaining the price line and checking the inflation," said Mahajan.
"There was reason to reduce it, and every time they said that though inflation was down, it could go up in future so therefore we would not like to reduce repo rate. This had a tremendous impact on the economy. Such opportunities of lower inflation do not come quite often," Mahajan said.
"Because of that fact the economy could have been boosted by good policies of the RBI, which was in a love-hate relationship with the government... Monetary and fiscal policies go hand-in-hand. If monetary policy makers think they live in their niche, that is not correct," he said.
"They have to work in sync with the government. Earlier the RBI officials were living in their own niche and were making statements outside, which affected the overall image of the economy. When Viral Acharya is saying our country is going the Argentina way, what message are you giving? These people should have been sacked then and there," Mahajan said.
Viral Acharya resigned from RBI last month citing personal reasons and is back in the US.
The RBI management of that time had major shortcomings which failed to provide the necessary boost to the economy, Mahajan said.
Raghuram Rajan and Urjit Patel were the RBI governors during 2014-19.
Mahajan said GST is a new application in the economy and it is good for the system, but it had its share of glitches. However, in the last two years of GST, the government is quite prudent in its approach such as reducing the burden of compliances, rates and addressing concerns of the small traders. Even this had a price though it is gradually coming to settle down, he said.
“That (the GST's initial teething issues) impacted the revenue of the government. GST revenues have not been to the expected level. There was a gap of Rs 70,000-Rs 80,000 crore in GST revenue last fiscal,” he said.
According to Mahajan, the other point is Indian economy is bank-based. In the last few years because of the NPA problem, some banks stopped lending and NPA problem was caused by sudden spurt in lending during the UPA rule. He claimed that because of high lending, the health of banking system got impacted and many of the banks came to a phase where no more lendings could be made. Now NPAs have started coming down and banks can be asked to start lending, he added.