Strategising the Reserve Bank of India’s exit from the current accommodative monetary policy stance, RBI Deputy Governor Subir Gokarn on Saturday favoured a staggered withdrawal process as a better bet than a one-off approach.

Speaking to the media on the sidelines of International Chamber of Commerce’s ‘Regional CEO Forum’ here, Dr. Gokarn argued that the robust second quarter 7.9 per cent growth was a new surprise element but that should not be the only factor for changes in monetary policy. Moreover, there was still a wide disparity in inflation numbers between food articles and manufactured items.

“When you talk of exit policies, you have to see it as a graded process and not a one-off approach. Focussing on growth for one year to abandoning growth to focus on inflation is a transition [process] ...Growth number is one input to them [the RBI], it is not the only factor,” he said.

As per the latest official data, while food inflation has touched 17.47 per cent in the third week of November, overall inflation has been a mere 1.34 per cent in October. Pointing to the need for a graded exit approach, Dr. Gokarn said: “You have [a] huge divergence here and it is a little unfair to say that we should be looking at only 17 per cent and not at 1.34 per cent. We have to take all perspectives on inflation and the significance of food inflation is that it is a risk that translates into [a] wider spiral through expectations and that is something we have to be concerned about.”

Understandably, with discernible signals of economic recovery, the RBI has begun shifting its monetary stance from just promoting economic growth to striking a balance between economic expansion and curbing inflation. A symbolic indication was provided during the policy review in October when the apex bank raised one of its key rates to signal the return of monetary tightening. “We have to ensure that recovery is not hurt while, at the same time, ensure that inflationary pressures do not go out of control,” Dr. Gokarn said.

In his valedictory session address, the RBI Deputy Governor pointed out that with India adding a staggering 220 million people to its working age population by 2030, their absorption into the job market would pose a daunting challenge as policy makers try to align the forces of globalisation with the overarching objective of inclusive growth.

To cash in on the advantages of globalisation and ensure that these percolate to the masses, the country’s policy makers would have to ensure flexible labour markets, arm the people with appropriate skills, develop infrastructure to facilitate the flow of investments, ensure mature capital markets to deal with resource flows and create safety nets to deal with the vulnerability of the people to external shocks, he said.

“Infrastructure has not kept pace with the requirement, skill generation has lagged and safety nets have not been adequate,” Dr. Gokarn observed.

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