Letters: Lack of coordination

The govt and RBI, both require supportive actions from each other in their respective areas to accomplish these

This refers to A K Bhattacharya’s column “A problem of coordination?” (Raisina Hill, October 22). The most important tasks of the government and the Reserve Bank of India (RBI) are promoting growth and controlling inflation, respectively. But both of them require supportive actions from each other in their respective areas to accomplish these. Growth is stimulated by low interest rates and inflation is checked through government measures like limiting fiscal deficit and checking rise in spending to budgetary estimates. However, both fiscal deficit and spending have shown a recent increase.

Moreover, government policies continue to inhibit domestic investment — compelling flight of capital abroad. An inability to control the current deficit is yet another factor. The most effective way to curb inflation is to reduce futile subsidies substantially. Since subsidies have high opportunity costs in terms of electoral politics, the government is just tweaking the problem, such as a nominal increase in the price of LPG (liquefied petroleum gas).

This also explains why blaming RBI for failing to rein in inflation, despite several rate cuts, is unfair. Instead, but for RBI’s firm determination, inflation would have flared up further. Any insistence on the part of the government to coordinate with RBI to promote growth by liberalising interest rates will be counterproductive, unless the former cooperates to check inflation and takes bold steps to enhance growth by other means.

Y G Chouksey Pune

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