The RBI shows some purpose.

Seems that everyone has accepted that inflation is the biggest enemy of growth. While a few months back politicians, civil servants and business fellows were howling for lower interest rates, claiming falsely that it will increase investment thereby leading to growth through higher job creation, yesterday there was not one peep as the RBI raised the cost of borrowing by 25 basis points. The previous Governor of the RBI, Subbarao succumbed to intense pressure form the Finance Minister who said," I have tried to argue that while I acknowledge that the central bank mandate is price stability, price stability must be seen as a larger mandate of growth and employment." Not true. We have consistently argued that policy and spending is decided by the government without consulting the RBI. Therefore, it must be the function of the RBI to act as a protector of the rupee by regulating government spending and keeping a lid on both the fiscal and the current account deficits. Since the government is the largest borrower a high cost of borrowing would force politicians to limit wasteful spending by making it expensive to borrow. During World War I ( 1914-1918 ) the Kaiser and the German Parliament decided to finance the war entirely by borrowing. The German Mark fell from 4.2 to 8.91 to the dollar. The Congress has financed a string of social schemes, costing trillions of rupees, through borrowing. The rupee has dropped from 39 in 2007 to 62 to the dollar today. Germany came out of the war with its economy and industries largely intact but was undone by the " London Ultimatum " which forced Germany to pay 132 billion gold Marks as war reparations. In the first half of 1921 a Mark was 60 to the dollar but fell to one third of one cent, leading to hyperinflation. Germany has never forgotten the trauma of those years and that is why it is insisting on austerity for Greece. India faces a flight of tens of billions of dollars when the Federal Reserve starts to taper its bond buying program, as it must, which will lead to further fall in the value of the rupee. It is imperative to control inflation now to prevent it becoming completely out of control. Our so called experts are craven stooges who blame the weather, oil prices, Europe but never the true culprits. The new Governor seems to have brought some spine and purpose to the RBI.