Repo Rate Cut: An Insufficient Tool to Fight Recession

01 November 2015
THE RBI move to reduce the repo rate (key interest rate) from 7.25 percent to 6.75 percent giving banks more elbow room to cut lending rates is only a desperate measure on the part of the central bank to boost investments in the economy. While it may spur demand for housing loans or other loans for durable consumer items such as cars to an extent, as per the existing laws of motion of the economy, cheap funds will flow directly into the speculative spheres such as stock, commodity futures and real estate markets. In the absence of a policy shift towards improving the purchasing power of the vast majority of the people who are increasingly pushed into destitution arising from joblessness and displacement due to deindustrialization and corporatization-induced agricultural retrogression, a mere cheap money policy will not contribute anything positively to investment in really productive sectors.

Without a reversal of the so called ‘Make in India’ and ‘Digital India’ projects with their heavy export-foreign market orientation and domestic distortion that go against the very concept of an ‘inward-looking’, ‘domestic-market oriented’ strategy of development, a liberal monetary policy as announced by the RBI now will lead only to further boosting of the speculative bubble coupled with inflation at the expense of employment generating productive sectors of the economy. In that sense, the RBI announcement reducing interest rate is a mere window dressing to hoodwink the masses while appeasing the corporate speculators.
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The Communist movement in India has a history of almost a century after the salvos of October Revolution in Russia brought Marxism-Leninism to the people of India who were engaged in the national liberation struggle against the British colonialists. It is a complex and chequered history.