The RBI wants to impose financial discipline.

A committee set up by the Reserve Bank, chaired by Deputy Governor, Urjit Patel says that the RBI will set its monetary policy in relation to the Consumer Price Index and not the Wholesale Price Index, which is lower. The report recommends the CPI be gradually reduced from 9.87% in December to 4% plus, minus 2%. The aim will be bring it down to 8% in 12 months and 6% in 24 months. The report also recommends abolishing the Statutory Liquidity Ratio or SLR.  Already the government is trying to undermine the report. Economic Affairs Secretary, Arvind Mayaram said," It is a little premature for India to consider CPI index for nominal anchor for monetary policy." He said this because a strict control of the CPI would mean higher interest rates for longer which means that the government will have to pay more for its borrowings. The increased payments will add to government expenditure and increase the fiscal deficit which the Congress has promised to keep below 5%. But surely low inflation helps the poor who are the greatest love of the Congress? Therein lies the paradox. The Congress loves the poor so much that it wants more of them by taxing the middle class into poverty so that it can earn their gratitude by giving handouts on taxpayer money. If that wins them elections that only proves how much the poor appreciate being treated as beggars. SLR is the money that banks have to hold in reserve in the form of government bonds, gold and cash. SLR is set at 23% at present. In an effort to control the spiraling Current Account Deficit the Congress has increased taxes on gold to 10% and on jewellery to 15% and severely restricted its import. Since banks are forced to buy government bonds it maybe keeping yields lower than they would have been. This keeps borrowing costs lower. The real reason why the Congress does not like the report is because it will impose discipline in government spending which it does not want. Our politicians think that taxpayer money is their property to spend as they like which is why our most respected Finance Minister is even now enjoying the annual jamboree at the World Economic Forum at Davos in Switzerland. Use taxpayer money to bribe the electorate to win elections and then enjoy yourself all over the world with wife and family, paid for by the hapless taxpayer. Better than being Bill Gates isn't it?