Before the six-member committee that sets monetary policy for the Reserve Bank of India met this week, the government in New Delhi made its preferences very clear. Two members of Prime Minister Narendra Modi’s economic advisory council—a body that he did without for a long time, but which was recently reconstituted following several policy stumbles—publicly declared that real interest rates were too high. But the RBI committee held firm and kept India’s policy interest rate at six percent.

This could have been, and was, predicted. India’s central bank is now officially supposed to be targeting consumer price inflation and nothing else; the government agreed to this change over a year ago. And inflation has been inching up, driven by higher prices for food and fuel. In October, consumer price inflation was the highest in seven months.

Formal requirements apart, of course, it would’ve been hard for the central bank to ignore the government’s pleas if the economy were stalled. But the government achieved something of a victory last week when GDP growth in the second quarter of 2017 came in at 6.3%, slightly faster than in the first quarter. That eliminated pressure on the RBI to cut rates and stimulate investment. Instead, the central bank’s priority is guarding against the possibility that higher growth will begin to affect wages—and, in particular, real estate prices, which the RBI singled out for attention in its policy statement.

This illustrates the government’s great dilemma. Growth in India never quite slows down enough to make crisis measures necessary. Yet it never quite speeds up enough to satisfy the aspirations of Modi, his party and his voters (not to mention his critics). The couple things the government has gotten right in the past few months—its attempts to streamline the new goods-and-services tax and its determined approach to cleaning up distressed assets—haven’t been dramatic enough either to ease the RBI’s worries or to push the economy to a permanently higher growth path.

Overall, this government has muddled through, producing a middling policy record and a middling growth record. Now it’s clear that the RBI won’t bail it out; the best chance for lower rates may have passed. Any revival of private investment—which, as a proportion of GDP, was even lower in the second quarter than the first—will have to come from somewhere else.

Frankly, if the government is serious about a growth revival, it will have to return to the drawing board. It still has time and political capital to spare before it has to face the voters in 2019. There is an entire set of reforms that it hasn’t touched since its first few months in power: to India’s problematic labour markets, for example, or to the ways available to industry and developers to acquire agricultural land.

Recently, India’s richest man, Mukesh Ambani, insisted that India would become a $10-trillion dollar economy by 2030. That would mean moving toward double-digit growth in dollar terms very soon. Yet there’s no indication of that on the horizon. Frankly, the signs to me aren’t propitious. While the growth slowdown may have reversed, part of that was simply a dead-cat bounce. Manufacturers who had stopped production to de-stock before the introduction of the new GST started up again in the second quarter. That’s hardly sustainable.

Nor is the government capable of intervening itself to prop up growth. In fact, it’s running out of money to keep stimulating the economy: It has already run through most of its fiscal deficit cushion for the year, and the RBI flagged the fiscal stresses caused by higher pay for government employees and Indian states’ mad competition to forgive agricultural debt. Nor are there really any signs, even anecdotally, of renewed investment in India’s private sector.

It’s hard to see 6.3% growth as a major achievement in India. As the RBI pointed out, it’s not a disaster. But, if the government is honest with itself, it’s not a triumph either. It’s time that Modi, his ministers and his advisers turned to the many reforms they’ve left pending—and stopped blaming the RBI. Bloomberg View

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