Who should decide 'whatever it takes'?

After S&P cut its forecast for growth in the Indian economy to 6.3% in the financial year ending on 31 March 2020, Moody's Investors Service went a step further and cut it to 5.8%. "The Indian economy is battling a severe demand slowdown and liquidity crunch which resulted in economic growth rate falling to a six-year low of 5% in the June quarter, while private consumption expenditure slumped to an 18-quarter low of 3.1%." "India's slump is deeper and more broad-based than we expected. In the April-June quarter, the economy expanded by 5%, well below potential, which we estimate to be north of 7%," said S&P. Consumers are refusing to spend and rural demand has fallen because of low wage growth and low food inflation so the private sector sees no reason to invest in new capacity. The Reserve Bank (RBI) cut the cost of borrowing by 25 basis points to 5.15%. The RBI has ensured that liquidity will be available when demand goes up but the government has to step up to stimulate the economy, wrote TK Arun. "The only sure way to step up investment is for the Center to step up its own investment activity and give the states additional leeway to step up their investment activity." Such as, cut personal income tax, clear all private sector dues, pay arbitration awards as decided, clear GST/other tax refunds and set up a stressed asset fund to buy all bad debt. All this to be paid for by "fiscal slippage". However, "RBI's annual study of state finances released on Monday shows a reduction in the size of the states' budget from 2017-19," wrote Puja Mehra. "The revised estimates for FY19 (financial year 19) show the fiscal deficit of states was 34 basis points higher than the budget estimates. This was primarily because of lower-than-budgeted receipts and higher expenditure on farm loan waivers and income support schemes." The private sector cannot invest as banks are refusing to lend. "Against Rs 7.36 trillion flowing from banks and non-banks to the commercial sector during April-September 2018, this year has seen only Rs 0.9 trillion flow over the same period," wrote and editorial in the Mint. With politicians and civil servants panicking, A Ranade advises to "Beware of the 'whatever it takes' response to a crisis". The RBI has "already rewarded the Center with a huge unbudgeted dividend". "Household debt, most notably credit card receivables, have grown at a whopping 30%, contributing to the fall in household savings. Lower interest rates may spur credit binges and possibly blow a credit bubble." The trouble is that "the government also sets interest rates on small savings schemes -- directly creating competition for the banks it owns and impeding the effectiveness of the monetary policy decisions that the RBI takes", wrote VA Nageswaran. One policy contradicting another. Also known as headless chickens.