RBI's new governor has a tricky old trilemma to confront as well

Policy under Malhotra will also need to consider complexities of capital flows and the rupee's value

- VIVEK KAUL

Shaktikanta Das' tenure as governor of the Reserve Bank of India (RBI) has come to an end. Stock market participants, regardless of what they may have been saying, would be heaving a sigh of relief. Why is that? Most of them view the broader economy in a simplistic way, looking at first-order effects because they have a story to sell. Here's the latest story being sold. Retail inflation has been high because food inflation has been high. In November, retail inflation was 5.5% whereas food inflation was 9%.

Core inflation, or the inflation after leaving out food items, fuel and light items, and petrol, diesel and other fuels for vehicles, and which forms a little over half of retail inflation, was 3.9%. To market participants, this means that inflation is under control because there is nothing that RBI can do to control food inflation. Hence, it should cut rates to boost growth, which in the July to September quarter took more than an expected beating. This is something that Das seemed unwilling to do.