Tuesday, February 27, 2007

People Richer Than RBI

You might have read oodles of analyses about the economic growth that India enjoys at present. The country witnesses the highest GDP growth in seven or nine years, reports say. And along with the growth in economy there comes an expected inflation. Economists say that the country need not panic looking at the current inflation rate, on the other hand, some wise moves can bring it under control. Why China, a country which has much higher GDP growth than India is not hit as badly by inflation as it does with India? No one knows. Ironically, some recent measures by Reserve Bank of India, the highest authority which should have a clear vision about the whole situation, underwent widespread criticism by many economy experts. When RBI increased the CRR (Cash Reserve Ratio) it was seen as a childish step to bring inflation under control. Prices of vegetables have seen steady increase in the last few weeks. Growth should not be cutailed in the name of inflation, some experts argue. Government should adopt measures to increase production in agriculture sector in order to freeze the price rise of cereals and vegetables. If economic growth resulted in increased flow the money flow among individuals in the country and investors from abroad, it is not a wise move to reduce the flow by curbing growth, The Economic Times argues. Instead, RBI should try to make productive use of the money increasingly reach the hands of the citizens.

This said, there is a simple method to check whether RBI is the real authority of money and currency that flow in the country. You should have two mutilated 100 rupee currency notes to participate in this simple experiment. Naturally, you will curse that moment during transaction when those currency notes reached your hands. Calm down, like many other unexpected incidents in life which have helped you learn experience for a life time, these unlucky notes will give you deep insight into the nation’s economy. Go to the RBI headquarters in Delhi (I know mutilated notes can be replaced in any of the RBI branches in the country but inorder you receive the right education, I strongly recommend a journey to the headquarters.). After a series of security checks, you will reach the main hall of the bank where you find several counters for business transactions. Contrary to your expectations about a high security zone, you see inside the bank people typically dressed like peddlers, involved in money exchange. Sensing your intentions they will also come to you and ask you if you would mind showing them the mutilated notes you have brought here for getting replaced. The currency numbers are lost, one cannot expect an at par replacement value for the notes. But suddenly the private ‘money exchanger’ offers you an unexpected deal!!

“The bank will give you fifty rupees each. Which means hundred rupees in total. I shall give you hundred and twenty rupees.” You will not believe this. How can a poor peddler like exchanger give an amount more than what the central bank offers? “Check it out from any of the counters, if you are not convinced.” You know that if you are going for a replacement through the bank, you will have to take additional burdens: you have to glue a white paper to the torn out part of the currency which will make it look structurally like a complete note and you have to wait in the long queue before the counter. However, you don’t want to entertain private exchangers. You go to the official at the counter and inquire about the exact situation, come back to the private exchanger and give him the notes right away. You don’t have to repair them, you don’t have to wait in queue and they paid you 20% more than what RBI could have paid. Tucking the notes in your purse and leaving the big hall of the bank, you realize there is nothing surprising about the current economic situation in the country – a highly disproportionate rate of inflation and economic growth. In India there are people richer than RBI!!

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