Why do we have the same discussion every month?

It is that time of the month again. Figures for the economy have just been published which will lead to a cacophony of calls for the Reserve Bank to reduce interest rate. The Consumer Price Index was 5.18% in February compared to 5.69% in January. It does not mean that prices are falling, it merely means that prices are rising at a slower pace compared to the month before. The average rate of CPI last year was 5.88% while it is 5.91% so far this year, so prices are rising faster, compared to last year. Those demanding lower interest rate point to 2 other indices. The Wholesale Price Index which has been negative for 16 months which means that wholesale prices of commodities, especially fuel, and manufactured products are falling. This is supported by the Index of Industrial Production which fell by 1.5% in January because of fall in manufacturing and capital goods. However, there are questions about this because the capital goods part is lower than in 2009, just after the Lehman Brothers incident, and the consumer goods component is the same as in 2012. Since IIP is measured against a base year, which is taken as 100, it would seem that growth is stagnant. The difference between wholesale prices and retail inflation maybe explained by the fact that WPI does not include services, such as education and recreation and amusement, whose prices have soared because of increased taxes. Average movie ticket in the US costs $8.70, which would work out to around Rs 600, whereas the price for a ticket at any multiplex in India would range from Rs 300-400. The median household income for people of Indian origin in the US is $101,591, which would be more than Rs 7 million a year. The average annual income of affluent people in India is a mere Rs 1.5 million. Compare college fees in the US to what the Indian Institute of Management charges in India. While one can postpone the purchase of a car or buy a cheaper brand of toothpaste, services, such as education, rent and healthcare are essential. Consumer spending is not going to rise by reducing interest rate as the total number of credit cards in India were a meager 21.1 million last year and the increase in spending maybe due to online purchase of retail products at the cost of bricks and mortar stores. So why the outcry for lower rates? The reason is that banks have huge amounts of bad loans, a lot of which has been hidden. Most of these are in infrastructure, metals and power sectors so low interest rate may allow the loans to be restructured at lower rates, providing some relief to companies. The hope is that lower rate will stimulate the real estate sector but that will help only those who can afford to buy properties at these levels, which means the rich. Increasing real estate prices only increase poverty as Britain is discovering. Lack of ideas all round. Worrying.