Nilesh Shah Profile picture
Dec 4, 2020 17 tweets 3 min read Read on X
Lot of comment on RBI becoming Pro Growth & keeping Inflation in back ground. Few Points to ponder.
- Inflation is being pushed on back burner globally. ECB moved from Inflation to Growth long back. US Fed has publicly stated to tolerate higher Inflation.
RBI pre Inflation targeting framework was managing Growth, Inflation, Govt Borrowing, Rupee and Financial stability remarkably well. Nobel Laurate Joseph Stiglitz complemented RBI stating that US Sub prime crisis would have been averted if Dr Reddy was US Fed Governor.
Despite stupendous success of the RBI in managing conflicting needs of Indian Economy, Inflation Targetting Framework was established without proper definition/measurement of Inflation.
This was like attributing credit of Mahabharat Victory to Single minded focus of Arjun (could only see Bird's eye while shooting arrow) than all round guidance of Shree Krishna.
Oddly Central Banks around the world are now following RBI in managing conflicting objectives as per the need of economy.
There are several omissions in calculating Inflation in India
- Globally feature improvements is considered for Inflation. Feature enhanced product will be non inflationary despite price increases. We look at TV price irrespective of its transition from B & W to LCD.
Globally Central Banks focus on Inflation excluding Food and Fuel. They accept the limitation that monetary policy can't influence OPEC or Rain God. We focus on Inflation where major part comes from Food & Fuel. Strangely Gold is part of Inflation calculation.
Calculation of Inflation is a different issue due to limitation on data capturing / price variation across India. For e.g WPI Inflation was 1.48 % in Oct 20 & 1.32 % in Sept 20. CPI Inflation was 7.61 % in Oct 20 & 7.34 % in Sept 20.
If we measure effectiveness of monetary policy from WPI it is excessively tight as Inflation is below RBI's target range.
From CPI angle it is excessively soft as Inflation is above RBI's target range.
Argument of High liquidity keeping CPI elevated doesn't make sense as YTD Bank credit growth is Rs 5.55 Lac crore (PY Rs 7.15 Lac crore). Bank Credit Growth is down Rs 1.60 Lac crore YTD. How can liquidity push inflation higher If it remains trapped between RBI & Banks ?
Higher Inflation impacting poor people also doesn't take into account concessional food grains given under PDS & other welfare schemes. Actual Food Inflation is much lower than reported food inflation if we take into account those data.
India Inc is running at much lower capacities as reflected in 7 % sales degrowth in NIFTY cos for Sept 20 quarter. Lack of demand is witnessed across sectors as reflected in negative GDP growth in FY 21. Supply chain disruptions are probably a bigger contributor to Inflation
Interest cost indirectly contributes to Inflation. Most MSME borrows money at high single digit / low double digit real interest rates. The depositors don't benefit from those rates as intermediarion cost remains high due to non resolutions of NPAs.
Raising Interest rates restricts creation of supply and increases cost of product & services. This creates a vicious cycle of higher Inflation, higher interest rates & lower Growth. Arguments of tight monetary policy for controlling Inflation overlooks this crucial aspect.
Our peers have brought inflation under control by lowering rates, pumping liquidity, supporting entrepreneurship and creating supply more than the demand. Our focus should be to create supply rather than curtail demand over long term to control Inflation.
Glad that the RBI has got the Shakti to come back to its original Krishna Avatar of managing conflicting objectives of Growth, Inflation, Rupee, Financial Stability and Govts Borrowing Program.
ECB & US Fed can ignore Inflation but India can't argument, doesn't take into account that they are growing at lower single digit & we need to grow at lower double digit. Negative real interest rates has been a catalyst for faster growth by encouraging investments in many places

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More from @NileshShah68

Jul 7, 2022
Will the DII Investment continue despite trailing twelve month return falling ?

Will FPIs exhaust their profit booking and come back to the Indian Market ?
Bulk of the FPI selling is in Banks and IT Cos from an extreme overweight positions, not in the core India Growth stories.
If FPIs look at the past performance, India is an out-performer by a big margin.

If they look at valuations, India trades at a premium to its own high standards.

But quality doesn’t come cheap. Isn’t it ?
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Oct 7, 2021
#20yearsofSevaSamarpan
I want to narrate two incidents about our beloved PM. One observed & one experienced.
I witnessed shortage and saltiness of water in my childhood days in Surendranagar. Narmada water was the permanent solution for the parched earth.
#20yearsofSevaSamarpan
The task was no less than that of Bhagirath bringing Ma Ganga.
SSNL conceived in 70s was derailed for decades by vested interest. Narendra bhai set aggresive targets, provided leadership & ensured water reached to the desert of kutch and Rajasthan.
#20YearsOfSevaSamarpan
It was Modern Day "Ganga Avtaran".There were many hurdles. But Narendra bhai Modi overcome each and every hurdle. Raja Bhagirath did it for his ancestors. Narendra bhai Modi did it for public good.
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Jul 25, 2021
#worldIVFDay #worldIVF Story of Dr Subhash Mukhopadhyay - Creator of India's first test tube baby is heartbreaking.
He was double doctorate in Reproductive Physiology from University of Calcutta & in Reproductive Endocrinology from the University of Edinburgh.
Dr. Subhash decided to return to India rather than stay in UK for better future. He created history while Working as a lecturer in NRS Medical college. His pioneering work on in vitro fertilisation delivered India's first test tube baby in 1978 aptly named Durga.
Incidently it was second test tube baby in the world. Dr Robert Edwards got full support and funding to create world's first test tube baby in UK. Dr Subhash struggled with resources in India. What happend there after was horrible and heart breaking.
Read 10 tweets
Apr 13, 2021
Fast tag helps in reducing waiting time at Toll Gates in turn saving Rs 20000 crore annually in Fuel cost. It also helps plug leakage in toll collections.
A small step with Giant gains.
Similar step is needed in approving Films blocking UV Ray's and Heat.
It was a thriving Industry helping save Rs 30000 Crore plus annually in fuel cost as load on AC was reduced. There were more than 1.5 Cr vehicles having films which were mostly transparent.
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Read 5 tweets
Sep 6, 2020
Beautiful Thread.
Originator : Unknown to me.

Starting with 2 Stories:
1. Yahoo refused Google
2. Nokia refused Android

Moral:
1. Update yourself with time, else you will become obsolete
2. Taking no risk is the biggest risk. Take risks and adopt new technologies.
Two Stories - Part II
1. Google acquired YouTube and Android
2. Facebook acquired Instagram and WhatsApp

Moral:
1. Become so powerful that your enemies become your allies
2. Grow fast, become big, and then eliminate competition
2 Stories: Part III
1. Barack Obama was a ice cream seller
2. Elon Musk was a worker in a lumber mill

Moral:
1. Don’t judge people based on their past jobs
2. Your present doesn’t decide your future, your courage and hard work does
Read 5 tweets

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