Interest Rates Chased by Inflation?

On being questioned whether the middle-class consumers and the employeds feel better or worse-off in the last 12 months, many of them drawing different scales of pay anything between Rs.10,000/- and 80,000/- per month feel let down by the spiralling inflation and high interest rates ensured by Reserve Bank of India. Any amount of income a middle-class family earns has lost its real value in terms of purchasing power in the market. A heavy or huge amount of currency notes in the hands of consumers give no guarantee to meet the routine expenses like EMIs for housing and vehicles, insurance premium and consumption of required quantity of vegetables and fruits, dairy products and protein foods. Education and health care are mostly not in the reach of the middle-class. The latter is hard-pressed for meeting all these expenses in view of the interest rate hikes caused by the monetary policy routinely announced by the RBI and the fiscal deficits resorted to by the Government of India with the commercial borrowings (both domestic and foreign) from time to time.

How to cut this vicious cycle? When the public debt including foreign debt exceeds the GDP like in the case of Greece, the economy is bound to collapse, with unmanageable levels of unemployment and rising costs of essential commodities and services. Unless the Government, the RBI and the full-time practising economists come around and chalk out the short-term plan, a medium term strategy and long term measures immediately without any lapse of time, the things are going to take a worse turn sooner or later.

India's External debt has crossed forex kitty for the first time in seven years. At the end of March 2011, external debt stood at $305.9 billion (17.3% of GDP) recording an increase of $44.9 billion or 17.2% over the end March 2010 level on account of significant increase in commercial borrowing, short-term credits, bilateral and multilateral borrowing. Bank borrowing from RBI touched Rs.1.04 lakh crore on Thursday - the last day of the quarter (cash crunch revealed). Demand rose as the money markets prepared for a week-end, followed by the US holiday on Monday.