The Hesitant (RBI) Governor!

Something is clearly worrying the RBI Governor. My best guess is that he is convinced that he does not trust the Governments readiness or intent to further economic growth. In his statement yesterday he clearly and unambiguously mentioned the following:
Recent monetary policy action by itself cannot revive growth. It needs to be supplemented by efforts towards easing the supply bottlenecks, improving governance and stepping up public investment, alongside continuing commitment to fiscal consolidation

The message should be crystal clear. A mere reduction in interest rates (monetary policy action) cannot revive growth. In fact that is what I had specifically mentioned in my earlier article. So the fact that is worrying our RBI Governor is the inaction of the government and maybe of the industry. He is worried that even if interest rates were reduced, the inflation menace cannot be curbed. No doubt the recent inflation figures have been encouraging but then I (and all of us) may have real reason to actually doubt the official figures can we really rely on them? Thats anybodys guess. The governor too may not be saying in so many words, but probably he too is not really convinced of the official data! He is thus clearly put the ball in the Governments court. The Government (and the markets) are relying heavily on the fall of commodity prices, especially Crude Oil, as a reason to cheer. But the governments (and the markets) are forgetting that price fluctuations are the nature of the markets and what can fall can also rise, and that too fast! The fall in commodity prices just happened. As usual the UPA government seems to be taking credit for something which it has not done! The Government cannot rejoice as it has actually done nothing on this front. As Gordon Gekko (Michael Douglas) , in the movie Wall Street 2 would have put Hey , is everybody out there NUTS? We, as an economy, can rejoice only if actual concrete steps are taken by our government to address fiscal consolidation. My presumption is that the RBI is trying to tell this to the government, but it (the government) is not in mood of listening, especially few months ahead of elections. And what came as a surprise to me was the Banks reaction to yesterdays policy announcement. The Banks are not ready to pass on the rate reduction, unless there is a cut in the CRR (meaning more liquidity is put in the system). Well I have my own doubts whether there is a liquidity crunch at all. Banks seem to be flush with funds as aggressive lending has slowed down. Why should they require more liquidity? Is it to keep the excess liquidity back with the RBI and earn out of it? Well it is high time Banks became innovative and searched for newer profitable ways to improve their profitability! When Banks do not pass on the benefit, the ultimate loser is you guessed it us! As India grapples with teh Inflation v/s Growth standoff , it is real sad that such a pragmatic and tough RBI Governor as Dr Subbarao, would complete his term in this September. An extension would be in the economic interest of India! CA Rajiv D Khatlawala