In his column “The RBI’s free pass” (Policy Rules, August 11), Mihir S Sharma is too strident in singling out the Reserve Bank of India (RBI) for the drop in net profit margins of the sampled companies and for the decline in growth. Margins depend on input costs also, more so in the manufacturing sector in which non-availability or high cost of raw materials (like minerals) and power and transportation take a heavy toll.
These costs, as also low growth, are the victims of a basket of non-monetary factors such as ineffective land acquisition policy (mining and infrastructure development), daunting administrative and licence-permit hurdles (power), uncontrollable price increases worsened by automatic taxation (fuel prices), political one-upmanship (foreign direct investment in multi-brand retail), submission to vote-bank politics and unproductive subsidies (diesel, food security and mobile for below-povert-line people) and, of course, all-pervasive corruption.
Add to this the corporate inertia to reduce costs by innovative and productivity-directed initiatives. There is a strong tendency to transfer the load of increase in costs to the consumer.
The writer is correct in suggesting that we need to test economic theories derived from occidental research on Indian waters before adopting them. (Whether our trinity beholden to western thought – the prime minister, finance minister and deputy chairman of the Planning Commission – will listen to this is doubtful.) His other idea to use Goodfriend and King model could be a better alternative but whether it will work without looking at an integrated strategy of demand, supply and political resolve is debatable.
Y G Chouksey Pune
Letters can be mailed, faxed or e-mailed to:
The Editor, Business Standard
Nehru House, 4 Bahadur Shah Zafar Marg
New Delhi 110 002
Fax: (011) 23720201
E-mail: letters@bsmail.in
All letters must have a postal address and telephone number