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Volume IconWhat is leading economist Rakesh Mohan's view on inflation?

How will global slowdown affect India? When will RBI's steps to rein-in inflation start show results? Former RBI deputy governor Rakesh Mohan answer these in a conversation with Business Standard

ImageIndivjal Dhasmana New Delhi

Rakesh Mohan

Q: Many analysts, including economist Nouriel Roubini, have cautioned against long and ugly recession starting 2022-end. Growth in exports from India has already started decelerating.  Do you see any impact of such a recession on India? 

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>Current period is characterised by a kind of uncertainty that the world has not seen for a very long time
>Don’t know what is ahead of us because of Covid and the Russia-Ukraine war
>Past 14 years saw continuous regime of very low interest rates and low inflation
>Western Europe and the US never saw an inflation rate of 7-10% in the last 40 years
>Declining population growth everywhere may affect the global growth in the medium term
>As a part of the global economy, there can be no decoupling for India from the uncertainties 

Q: You have talked about inflation. It has remained high since January, despite MPC hiking repo rate since May. It stood at a five-month high of 7.41 per cent in September. Could it be that the panel is tightening monetary policy even as the problem is coming from the supply side? 
>Impact of the RBI monetary policy actions has a very long lag
>Impact of MPC actions taken today would come in 4-6 quarters from now
>Can’t say that the monetary policy is tight yet
>With 5.9% repo rate and inflation rate of 7.4% in September, real policy rates are still negative 
>One of the roles of inflation targeting is to anchor inflation expectations
>If inflation expectation is anchored at 4%, then a policy rate of 6% is approaching normality

Q: Along with inflation, now Index of Industrial Production (IIP) is showing deceleration. It has shrunk 0.8 per cent in August. So going ahead, do you think that MPC will be in a dilemma to boost growth or contain inflation? 
>The question is how much is the monetary policy responsible for slowdown in the economy
>For a nominal economic growth rate of 12-15% in India and real growth between 6-7%, lending rates of 8-10% are not high

Q: Finance minister Nirmala Sitharaman has also touched upon the twin issues of slowing economic growth rates and rising inflation rates. She said the budget for 2023-24 will target both high inflation and slowing down economic growth. What broader points do you think should come up in the budget to do that?
>Areas where India has failed miserably are health, education and nutrition
>National Family Health Surveys have shown that around 30% of kids are stunted, and almost similar proportion are wasted, in rural areas 
>There is some improvement in rural health, but that’s not adequate
>Annual Status of Education Report (ASER) indicates that outcomes in education are not good, despite increase in numbers
>It’s important that this Budget indicates its focus towards public health, nutrition and education with a three-year or a five-year framework
>India’s public expenditure on health and education as a proportion of GDP is among the lowest in the world
>This is why health and education are getting privatised in India more than other countries of the world
>Budget should make announcements on these, and take some mission-oriented of action with adequate budgetary allocations  

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First Published: Oct 25 2022 | 7:03 AM IST

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