Cloud cuckoo land.

In the middle of April, 2012 Finance Ministry officials made an hour long presentation to S&P Credit Analyst, Tokahiro Ogawa supporting a credit upgrade for India. They pointed out economic growth prospects, growth in revenues and the government's efforts to control fiscal deficit through increasing tax collections. Mr Ogawa listened politely giving no sign of what he was thinking. A few days later, S&P downgraded India to BBB- which is just above junk grade. " We were not expecting the downgrade," said one official. " We made a presentation arguing India's growth prospects, tax-GDP ratio, efforts to fix the fiscal deficit are quite genuine and deserve better ratings than countries like Tunisia," said another. What these people do not understand is that no one believes them. Not even the RBI. Couple of days ago Finance Ministry officials were certain that the RBI was going to reduce interest rates and when that did not happen the sense of betrayal was acute. Our most revered Finance Minister echoed a song by Tagore when he said that he is " walking the path of growth alone ". Apparently officials have been working on a plan for fiscal consolidation for the past fortnight. " We were all ready for a rate cut after all the plan was approved at the highest level," said a senior official. TOI, 3 November. Which probably means the World Famous Economist, the man who has had 8 years to improve the economy but has only succeeded in bringing us to the edge of collapse. The reason why no one believes them is because growth prospects cannot improve unless government spending is drastically reduced. Spending cannot be reduced because rise in civil servant salaries, MNREGA Scheme and written off debt of farmers cannot be taken back. Trying to reduce deficit solely by savagely increasing taxes on everything contributes to inflation and reduces growth by reducing spending.  What is really worrying is that it is not just woolly headed thinking but a complete lack of understanding for reasons of stagnation. What is concerning the RBI is a rise in core inflation from 5% in March to 5.6% in September. Core inflation strips out food and measures the rate for metals, cement, iron, chemicals, textiles and transport machinery. wsj.com, 3 November. Robert Prior-Wandesford, economist at Credit Suisse in Singapore says," I am not surprised they ( RBI ) are worried. I have myself been surprised by the stickiness of core inflation despite weakness in industrial production as well as weakness of ...... international commodities which have traditionally been an indicator of core inflation." So, it is not the weather or Europe that are to blame but government policies which are causing inflation even though global commodity prices are weak. Making policies in cloud cuckoo land. Terrifying what?