Source: Business Standard

The government of India has been at loggerheads with the Reserve Bank of India (RBI) in recent times. It has blamed the RBI's hawkish stance for the sluggish economic conditions. Higher interest rates have been responsible for deterring capital investments in the country. The latest data released appears to agree with what the government says. The gross capital formation by the private sector in the country has declined in 2011-2012. The rate of gross capital formation declined to 35% of GDP. This is the first decline since FY09 when the rate stood at 34.3%. While the government would argue that the blame for this decline lies solely on the RBI. However, the policy inaction in the country is a bigger culprit. Policy inaction leads to uncertainty. And for investments to increase, companies need clarity. For that reforms are required.