Best of BS Opinion: The RBI's current policy framework has worked well

Today's Opinion Page looks at the RBI's recent discussion paper on inflation targeting, OpenAI's plans for India, the role of institutions in growth, and the recent GST rate cuts boost to growth

The Reserve Bank of India, in a recent discussion paper, has questioned its own current inflation targeting models, and wondered if they should be altered or replaced with other options. Our first editorial argues that it would be appropriate to keep the existing framework until empirically proven otherwise. For starters, whether headline or core inflation should be considered while setting monetary policy, the editorial goes with the first, saying that ignoring food inflation in India would be a disservice to the millions for whom it is the major share of household expenses and that it remains a better gauge of the actual cost of living. Similarly, the two percentage point band around the four per cent target offers flexibility. The four per cent target itself has been arrived at based on empirical evidence, and raising it risks being seen by markets as a dilution of price discipline. Finally, on whether the central bank should adopt an inflation band instead of a fixed percentage point target, the editorial says credibility is best preserved by the latter, with the two per cent band serving as a practical margin for shocks.  As its second-largest market, India is naturally high on OpenAI's priority list, and it is now looking to establish a physical presence in the country, and could well set a precedent for similar efforts worldwide. Our second editorial argues that access to affordable AI could be a game-changer and could enable both small businesses as well as individuals in developing more use-cases and solutions. The company behind ChatGPT has also promised it will store Indians' data locally - this will help it develop specific insights for India and give it a headstart against the competition. Nonetheless, Indian policymakers would do well to go beyond current legal mandates and look more closely at privacy safeguards, and possibly evolve the regulatory framework for managing AI-related privacy and surveillance risks. The increase in AI penetration will bring its own set of challenges around algorithmic transparency, bias, and automated decision-making.

  Our columnist Mihir S Sharma makes a strong argument for the safeguarding of institutions, even as he questions whether they are the bedrock for growth, investment and economic stability, or if it is the other way around. Whatever the case may be, they need to be insulated from the whimsy of political leaders such as Donald Trump, who has been on a dismantling spree of multiple institutions. His recent blitz of tariffs are a prime example, since he has gone beyond the executive's remit into the legislature's turf, upending the principle of separation of powers. The US Congress has been a mute, even cowardly, spectator to its own takeover. The replacement of the Labour Secretary over data that the President did not like is another example. Additionally, he has been threatening to fire the US Fed chairman over his reluctance to cut rates. The US has long prided itself on its institutions, but they suddenly seem ill-equipped to withstand a president who sees disagreement, or even uncomfortable data, as a conspiracy. Whether institutional weakness will drag growth down, or can growth continue in the face of their weakening is a question that will answered over the next few years.

  Our second columnist, Debashis Basu, wonders if the recent cuts to GST rates from four to a much-lower two (and a separate one for sin goodss) will sustain markets' enthusiasm. The last time this government cut corporate taxes, in 2019, the markets' initial enthusiasm soon faded, because the cuts were seen as a desperate response to falling growth rates. India Inc also failed to re-invest the retained earnings, largely because the demand was simply not there. The situation, while not as dire now, is similar. There big difference this time - the X-factor, so to speak - is that the GST rate cuts will directly impact, perhaps even boost, private consumption in an economy where it accounts for almost 60 per cent of GDP. The trouble, though, is that such cuts don't really address India’s deeper weaknesses and do little to fix structural impediments to growth. In 2019, the corporate tax cuts were seen as a harbinger of second-generation reforms; this time, despite PM Modi's declaration, hopes on that front are muted.

  In 'STRONG ROOTS: A Memoir of Food, Family, and Ukraine', chef Olia Hercules - who has raised millions for her home country through her #CookForUkraine programme - arrives on the map as an attentive nature writer even as she recounts the rushing anguish of war and generational trauma, writes Alexandra Jacobs. Russia’s invasion of Ukraine in 2022 has fractured her family of origin: her brother joined the Kyiv territorial defence forces, while her parents have had to flee their home city of Kakhovka. The author also recalls the horrors of war and Stalinist Russia, where her maternal grandmother survived being thrown into the snow - as did her paternal grandmother - and comes across as a formidable heroine of the book.