As the economy slowly exits the epidemic, former RBI Governor Raghuram Rajan warned on Sunday that a “drastic change” in India’s monetary policy framework could upset the bond market as the current system boosted inflation and Has helped to promote development.
Mr Rajan, a noted economist, also said that the government’s ambitious goal to make India a $ 5-trillion economy by 2024-25 was “more aspirational than carefully calculated even before the epidemic”.
“I believe that the (monetary policy) framework has helped bring inflation down, while the RBI has given some flexibility to support the economy. It is difficult to think that if we were without such a framework What would have happened to drive a large fiscal deficit? ” Place, ”Mr. Rajan told PTI in an interview.
His remarks were in response to a question whether he was in favor of reviewing the 2–6% target band for inflation under the monetary policy framework.
The Reserve Bank of India (RBI) is mandated to maintain retail inflation at 4% with a margin of 2% on both sides. The six-member Monetary Policy Committee (MPC) of the central bank headed by the RBI governor takes decisions on policy rates keeping this goal in mind.
The current medium-term inflation target, notified in August 2016, ends on 31 March. The inflation target for the next five years starting in April is likely to be notified this month.
Against this backdrop, Mr Rajan said, “If we make drastic changes in the structure then we disturb the bond markets”.
“I think the framework has been beneficial in bringing inflation down, I don’t think it has become expensive in slowing growth, and this is probably the wrong time to make drastic changes,” he said.
There are concerns among some quarters about overall financial health, and bond yields have also been on an upward trajectory, with the government introducing substantial borrowing schemes to boost the economy affected by the coronovirus epidemic. The latter trend suggests that government borrowing may be more expensive.
Regarding the reform measures, Mr. Rajan said that the 2021-22 budget put too much weight on privatization, but it examines the history of the government to be distributed, and he wondered how this time it is different. Will happen.
He said that the latest budget, admirably, has more transparency about the true extent of spending, as well as a degree of conservatism about budget receipts that has not been seen in the recent budget.
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