It is the government and not RBI that has to act

The Reserve Bank of India ( RBI) has given clear indication that monetary policy has to remain cautious in the face of financial risk, unbridled consumer price inflation and a still-high current account deficit ( CAD).

While the RBI might stoop to administer emergency CPR to the economy gasping for breath, it would prefer to leave treatment for sustained recovery to the government.

In its review of macroeconomic and monetary developments, the RBI makes it very clear that structural reforms to contain the CAD and fiscal adjustment to prune subsidies and step up investment are what the economy requires, and these depend on government action.

While the RBI notes that consumer price inflation is high, thanks essentially to soaring food prices, it expresses a ridiculous hope that a good monsoon would tie them down. A good monsoon can certainly increase food output. But hasn't the RBI heard of a gent called K V Thomas, who grabs any and every grain of food that comes to the market, to add to the government's stock of 78 million tonnes, the largest hoard of grain in India's history?

Ably assisted by the food secretary and his minions, Thomas has ensured that cereal prices rise some 17% month after month. With Thomas on a cereal hoarding rampage, how does the RBI presume that additional output would lead to lower prices? Or when the APMC Act forces farmers to sell their additional output to a bunch of middlemen who would corner all the gains?

We fully endorse the RBI's call to swiftly pass on the additional rupee costs of imported energy to consumers and to stay the course on disciplining the fiscal deficit. Bringing in policy coherence so that norms for domestic operations gel with foreign investment liberalisation, clarity on taxation and a policy of sacking obstructionist civil servants who stall projects and clearances simply through endless dither would certainly help.

These things call for political boldness. The government's choice is between being bold or being booted out, come 2014, for mismanaging the economy. Bold is better.