Cheap money is of no use if no one wants to borrow.

The Monetary Policy Committee of the Reserve Bank will be meeting today to set policy rates for the next 2 months. The Finance Minister, a lawyer, wants rates to be reduced, just like his predecessor, another lawyer, did in his time. Nothing changes in India, does it? Experts differ in their opinions on whether rates should be reduced, if so by how many points, or kept the same with a softening in bias. Writing for Bloomberg, SK Ghosh argued that retail inflation is down, although core inflation is holding steady, a good monsoon is predicted, food prices are down, the rupee is stronger, so imports are cheaper, and civil service pay rise has not yet been implemented. Reducing inflation by 1% reduces Gross National Product by 6-18%, which is known as the 'sacrifice ratio'. While not asking for a cut he feels that the RBI should soften its stance on inflation. VA Nageswaran has no such qualms. He thinks that the economy is in crisis and growth is dependent solely on government spending and increased iron ore production. He recommends a hefty cut of 50 basis points in policy rate. The RBI should take a deep breath before opting for a rate cut, wrote M Bhusnurmath. The Federal Reserve is due to meet right after the RBI and could raise the Federal Funds Rate. If the RBI reduces policy rate here while the Fed tightens Funds rate there it could result in an outflow of dollars, which will weaken the rupee and immediately increase the cost of imports, especially oil. Anyway, banks are reluctant to lend because their books are loaded with bad loans and deposit growth is falling in public sector banks, wrote Aparna Iyer. A paper from the Bank of International Settlements showed that long term interest rates of emerging nations follow the pattern set by the Fed although short term rates may behave differently. Why all the cacophony? Because GDP growth fell to 6.1% in the fourth quarter of the last financial year. Gross Value Added has fallen to 5.6% from 7.6% in the first quarter. Actually, despite government boasts, GDP growth has declined every quarter, from 7.9% in the first quarter to 7.5% in the second and 7% in the third. Gross Fixed Capital Formation, which means private sector investment, has fallen to 2.4% from 6.5% a year ago. When Harvard economists predicted that demonetisation will impact growth, Modi had taunted them saying "hard work is more powerful than Harvard". Sinha of Emkay Global wrote that growth has fallen more than numbers show because the informal economy has not been fully factored in as yet. So, Harvard was right. Education has some value after all.