This refers to Subir Roy’s column “Old remains gold in fighting inflation” (Value for Money, September 28). The author, while elaborating on former Reserve Bank of India governor I G Patel’s views on inflation, has underlined the importance of balancing monetary tools with fiscal instruments to control inflation. While RBI’s initiatives in controlling inflation can be commended, its approach is flawed on several counts. First, RBI’s stance of treating inflation purely as a monetary phenomenon is completely incorrect in the Indian context. Second, the Bank has been merely been raising repo and reverse repo rates at periodical intervals. What about other instruments of monetary policy? During the seventies and the eighties, RBI controlled inflation through other instruments of monetary policy — selective credit control (SCC) measures, open-market operations and moral suasion, to name a few. Of these, SCC directives to commercial banks have had the desirable effect in monetary expansion by way of bank credit.
Finally, RBI should have apprised the finance ministry of the futility of a monetary policy without the back-up of a prudent fiscal policy. IG’s prescription to combine fiscal discipline with monetary policy, thus, is quite right.
K V Rao, Bangalore.
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