Business Standard

<b>Letters:</b> Back to basics

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Business Standard New Delhi

Apropos A Seshan’s article “India is suffering from inertial inflation” (December 10), experts have interpreted the inflation phenomenon in different ways. That has added to the confusion of policy makers. The inflation versus growth trade-off – relevant as it may be analytically – is not as constraining in policy formulation as it is made out to be.

There cannot be a Reserve Bank of India (RBI) prescription for reviving growth at variance with what the finance ministry suggests. The monetary and the fiscal policy mix, or the public expenditure policy, cannot work in isolation. Both RBI and the finance ministry allowed inflation to acquire structural proportions. In the course of high-ranked discussions on inflation, policy makers and intellectuals forgot the basics. In the past, the economy had seen moderate inflation owing to the inter-play of savings and investment rates working hand-in-hand.

 

Even the household sector is responsible for the inflation mess. The economy is currently being driven by “consumption demand” rather than “investment demand”. That has reduced domestic household savings. Further, with inflation continuing at a high level, households have lost faith in the financial markets, including banks. This is a structural issue that needs to be addressed immediately.

K V Rao Bangalore

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First Published: Dec 12 2012 | 12:05 AM IST

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