The minutes of the monetary policy committee meeting should put to rest the misgivings one (including this publication) had as to whether the committee members echo a party line. The fact that one member, Ravindra Dholakia, dissented is known but the minutes reveal the real vigour behind the discussions.

Dholakia wanted a 50 basis points cut in the repo rate but the Reserve Bank of India (RBI) had the vote of five to hold rates. He disagreed on almost every outlook that the central bank provided and not just the inflation forecast.

The most interesting revelation from the minutes is the emergence of two poles, the dissenter Dholakia and the notable hawk Michael Patra, an RBI official. Both the members have polar opposite outlooks based on the same set of data.

While Dholakia said that core inflation figures indicate a clear declining trend and not stickiness, Patra read the opposite. The two members differed strongly even on the output gap. Patra believes that an output gap calculated on historic data will be wider than otherwise and a projected growth of 7.3% in gross value-added for fiscal year 2018 makes a case for a narrowing of the gap. However, Dholakia argued, “There cannot be disagreement on the Indian economy significantly under-performing compared to its potential now for quite some time." The output gap is here to stay and will keep a lid on inflation, he said.

Dholakia also argued that farm loan waivers and state fiscal profligacy won’t be inflationary, in direct contrast to all other members’ statements.

The two members agree on one point: that the outlook on inflation in the near term is benign. But whether that will mean a rate cut in August depends on how the members in between these polar judgements decide to vote.

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