Letters: The definition of reform

A Seshan, in his article "The dangers of tolerable inflation" (December 27), has lamented the lack of a definition of "monetary stability" in the authentic documents of the Reserve Bank of India (RBI). However, he agrees that it is generally accepted by the RBI to imply price stability or the maintenance of the purchasing power of the rupee. Here, it is neither necessary nor practicable to specifically define some crucial concepts in economics and even in general parlance. Reform, for example, has never been defined but the term has been used for years by economists and administrators. Once, the definition of reform was asked in a Parliament question. The revenue department of the ministry of finance defined it as "taking action towards what is contemporaneously thought as better". This is an approximation of a definition widely accepted by several economists and executives. The second issue put forward by the author is that there are two choices of stability. First, is to have more rigid price stability while there may be slight failure due to circumstances beyond RBI's control. The second choice is to bargain for tolerable inflation by projecting the money supply to accommodate that level of inflation. The author opts for the first, but unknowingly approves the second option when he says that it is also consistent with price stability if the inflation is only two per cent. So, there is only one option - to keep the level of inflation between two to four per cent, which is a "new normal". The consensus among economists on the degree of inflation is that as long as the consumers' buying power is growing faster than inflation, which means that inflation is less than the economic growth rate, it does not hurt the consumer.

Sukumar Mukhopdhyay New Delhi

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