Need to cut spending rather than rely only on tax increases: Subbarao
Reserve Bank of India (RBI) Governor D. Subbarao has said that the bank could ease pressure on the brake pedal of tight monetary controls only in a calibrated manner, given the prevailing macro-economic situation.
Delivering a lecture on ‘India in a globalising world - some policy dilemmas,’ organised by the State Planning Board here on Monday, he said the opinion that consistently got reflected in the media would have it that tight monetary controls were stifling growth.
This view was that of the financial market.
The country also had to contend with the problem of inflation, which was prevailing at a level of more than 7 per cent, having come down from 11 per cent. This prevailing level still was above the tolerance limit. Growth had come down, but inflation was yet to come down.
He said there was no concern in the matter of cereal supply to the people because of the poor performance of the monsoon thus far since the country had good buffer stock. However, supply of pulses might face some problems since the rain-deficit meteorological divisions include areas where pulses were being grown.
He said there were three dilemmas before the policy-makers. First was how to manage the growth-inflation dynamics. The second related to external sector problems — the growing current account deficit and decelerating capital inflows. Oil and gold imports accounted for a major share of the current account deficit and global recession the diminishing capital inflows.
The third dilemma was the political compulsions that make fiscal consolidation exercise a sluggish one, he said.
Keywords: macro-economic situation, policy dilemmas
Why don't the RBI shut down its printing press and stop crating
inflation.It seems they don't even understand the definition of
inflation.The standard definition of inflation is increase in money
supply.The rising prices is not inflation.The rising prices are the
consequence of inflation.Prices donot inflate they adjust but the suppy
of money ca be inflated.Inflation is nothing but stealing money bin a
deceptive way by giving the purchasing power to the new money by
depreciating the purchasing power of the existing money in
circulation.And whenever the currency depreciates the transfer of wealth
from poor and middle class to the rich takes place as the first user of
the newly created money will be the beneficiaries.
India's reserve bank unlike the central banks of other countries should apply the basic laws
of economics because we have not yet evolved as an advanced economy. Our problems of
inflation is because the per capita has increased considerably but our reliance on food and
essentials is still at the mercy of nature. Though we get enough rainfall to meet all our needs
and even more our water management is dismal. More than 90% of the water we get goes to
the sea and still we fight like a bunch of school kids that one state will not release water to
another. Is it rocket science to realize that common utilities have to be in the control of the
center and not the state? Management of a number of essentials including water, electricity,
health management, poverty management, Gas and utilities should be viewed nationally.
Similarly, when you try to control inflation, you tend to throttle growth if your overuse it. There
is very little leverage to play with. It is meant for fine tuning.
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