A lot of people are exercised about the Reserve Bank's decision on Thursday to suck some more money out of the market, thereby prompting interest rates to climb a little higher.
The critics say that the RBI is ignoring the economic slowdown and focused on fighting inflation, which (in their view) has not been caused by monetary forces and can be traced mostly to supply shocks or international forces.
The counter-view is that central banks are supposed to target inflation as their primary goal, that all inflation in the end is monetary, and the RBI is not being anti-growth, since sustainable growth is facilitated by an atmosphere of stable prices.
Whichever side of the debate you are on, there is no getting away from the fact that difficult choices have to be made in a situation where you are asked to fight two contradictory problems at the same time. Investment and growth matter more to some people, but prices are a hotter political problem -- the walk-outs in Parliament are over inflation, not the slowdown. So it is not hard to guess on which issue the government will focus.
While this debate is predictable, it should not make the country forget that it is paying the price today for sustained inaction. Inflation would have been easier to tackle, and economic growth more sustained, if the government had undertaken the reforms that have been on the agenda for years, without any action materialising.
The most neglected agenda item has of course been agriculture, which has been in dire need of second wind but has suffered a malign neglect -- lack of public investment, absence of new technology, low productivity levels, archaic marketing laws, large gaps between farm-gate and retail prices, and so on.
That last point is what hurts farmers the most, but the failure to usher in organised retailing, with all the process efficiencies it is capable of (cold chains, supply chain management, etc), means that even as the government is focused on keeping prices down for the consumer, the farmer is getting lower prices for his produce than his counterparts get in other countries.
Much has been written about farmer suicides and unviable farming, but it is impossible to change this without reducing the number of people who live off the land -- which in turn is possible only if the labour laws change and facilitate the creation of entry-level jobs in employment-intensive industrial and service sectors.
Even that is not the whole story, for there is also the failure to create a public distribution system that reaches vulnerable populations and is not susceptible to widespread leakages. That is quite apart from the failures in short-term food management -- like the quixotic decision to contract wheat imports, only to cancel the contract, and then to try later for imports at higher prices.
Then there are all the issues that should have been tackled in order to lower costs and make the economy more efficient -- factors that would have impacted both prices and growth. Thus, the failure to do proper reform of the power sector has meant that electricity shortages have reached their worst-ever levels, with the peak power shortage climbing to an unthinkable 17 per cent.
The failure to implement the highway programme according to schedule has meant that transport efficiencies have not been fully realised. It could even be argued that the partial story on fiscal correction (properly measured) prevents the government from doing counter-cyclical spending in order to give the economy a boost.
The question today is whether all the issues that were neglected when things were going well, will now get due attention when we can see even more clearly what needs to get done.