It is not curbing inflation but inviting recession
By Dr Sanjay Chaturvedi
The Union Finance Minister Shri Pranab Mukherjee said that by announcing a 50 basis point increase in the policy repo rate, raising it from 7.50 per cent to 8.0 per cent, Reserve Bank of India (RBI) has sought to give a strong signal to further moderate inflation and check inflationary expectations. The Finance Minister Shri Mukherjee was reacting here today to the 50 basis points increase made in the policy repo rate under Liquidity Adjustment Facility(LAF) by RBI in its First Quarter Review of Monetary Policy 2011-12 which was announced today in Mumbai.
Shri Mukherjee said that he expects that with this policy adjustment, we will be able to get back to a more comfortable inflation situation that takes us to the year end inflation level of 6 to 7 per cent. Though it is not clear as to what is the basis of calculation of arresting inflation and what is the height of enhancing repo rates but one thing is clear that the economy is slowing down and especially Real Estate is effected by the monetary policies of RBI.
Every time the cost of vegetable increases, RBI wants to enhance the repo rates so that people do not have funds to buy. But necessary items like vegitables will bought at any price just like Petrol or housing finance.
Government do not want people to take housing finance hence every time the rates are increased, housing finance becomes dearer. In return, sales are down and volumes are sliding further down. Hence a full fledged recession is setting in. The inflation is better since people get money in hands even in rotation but in recession, it is worst and no policy can make economy out of it. World has seen the recession and economist will tell you how bad is recession. When nothing is selling and there are no margins, the financial terrorism through enhancement of repo rates will reflect its dark shadow for generations to come. We will be back in 60s and 70s again.
If Real Estate industry is fetching food to 200 industries and second largest employer with second largest turnover industry, a need based industry, playing with its basics will cost dearer to the exchequers.
