Will we end up learning from the Brits?

Financial Consultant, Anantha Nageswaran is enthused by the British Prime Minister, Theresa May's speech at the Conservative party Conference last month, in which she said that negative interest rates have harmful effects and uncontrolled immigration is bad for the nation. Quantitative easing and "super-low interest rates" were necessary to deal with the financial crisis but have resulted in "some bad side effects". "People with assets have got richer. People without them have suffered. People with mortgages have found their debts cheaper. People with savings have found themselves poorer," said May. She could have been speaking about India, where politicians and civil servants can think of nothing beyond reducing interest rate in the belief that it will stimulate growth, regardless of the constraining effects of high prices. After the recent rate cut by the RBI the Economic Affairs Secretary tweeted that it will "facilitate a move towards a low cost economy". Others were surprised by the move. Nomura could see no economic reason for the rate cut at this time. Costs will surely fall, but for the rich who will be able to borrow cheap to buy assets. For the poor, costs of everyday essentials could well rise, so it was a cynical move. A couple of months back the government set a target for inflation at 4%, plus/minus 2%, which gives an absurdly wide range of 2-6%. While cutting interest rate by 25 basis points the RBI said that it expected retail inflation to be 5.3% by March 2017. Which means that the RBI is actually aiming for retail inflation level of 6% which is not in the spirit of the official monetary policy. We are being warned that petrol and diesel prices are set to rise sharply later this month because crude has risen to $53 a barrel. We are told that prices of fuel are dictated by market prices, which is completely false, because the major component of the price of fuel at the pump is taxes levied by the government. If the cost of petrol is Rs 64 at the pump the total of various taxes is Rs 39, well over half. If fuel prices rise even higher the RBI could be forced to raise interest rate to control prices, which will leave it with egg on its face. Or the government could lower taxes which will blow its fiscal deficit target off course. Under the previous governor the RBI calculated the neutral interest rate, which is the rate at which the economy is not contracting and prices are stable, at 1.6-1.8%, but the present governor has set it at 1.25%. Why, when he is predicting higher inflation? Maybe, he is trying to stimulate the economy with cheap money, as in the west. Trouble is that inflation is below 1% in western countries while it is at around 5% here. Do they want a repeat of what happened under Congress? Maybe Theresa May can shake up the world, like another woman, Margaret Thatcher did.