In the absence of any meaningful governance by the government, the task of controlling inflation has fallen in the hands of the Reserve Bank of India. The RBI has been performing its duty over the years by deploying the only meaningful tool of tightening money supply available at its disposal. The RBI has been deploying the monetary tool because the government has not been performing its duty of governing the nation, which would mean: increasing productivity, removing supply bottle necks, controlling leakages and corruption, controlling inflation and unbridled salary and perk increases to its employees, bringing forth police, administrative, judicial, and electoral reforms, etc.
Despite deploying the monetary tool and tightening money supply, the inflation has been stubborn and non-responsive at around 10%. The reason why inflation has been non-responsive is because it is mostly a supply problem, compounded with unbridled and undeserved huge increases in salaries and perks of the most non-productive sectors: the politicans, babus, judical, psu, etc.that puts a pressure on the private sector to do to follow suit. This has been hugely counter-productive in the absence of corresponding increase in productivity. The other reason for failure of course is the introduction of a number of taxes like the service tax, education cess, and this and that tax without any corresponding increase - improvement in electricity / water / education / justice / law and order, etc.
It is not at all too early for the government leadership to take time off from politiking and to introspect. If they did that, they would probably bring in many into direct governance process the likes of Sreedharan, Arun Nehru, Arun Singh, Sam Petroda, Seshan, Lyngdoh, Kiran Bedi for real progress and performance.
And it may be time for RBI to wonder whether it alone can tame inflation without killing growth and jobs.
Victor
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