In the article, “ >The limits of autonomy ” (Oct. 17), the writer has failed to acknowledge that in India, formal industries are only a fraction of the total demography. In a country with more than 50 per cent of the population engaged in agriculture and over 90 per cent in the unorganised sector, won’t a rate reduction inevitably cause inflation? In a capitalistic economy like the U.S., increased growth may offset price hikes. But in India, growth will be enjoyed by a few while the burden falls on many. As a result, growth will happen, but the gulf between the haves and the have-nots will be further enhanced. Also, the RBI Governor appears to have a better understanding of and sensitivity to the welfare concept in economics than the popularly elected government is.
Harikrishnan D.,
Thiruvananthapuram
In reality, when markets are less than perfect it is difficult to know what the contemporary inflation rate should be, given the prevailing macroeconomic fundamentals. The control of inflation has been the exclusive domain of the RBI, it being involved with market/business/economic research and forecasting. The current move of inflation-targeting by the government will mean a diminished role for the RBI as a professional authority. In any case, targeting inflation should not end up being a bone of contention in political versus professional terms between the RBI and the government. Rather, there must be balanced and combined efforts by both the RBI and the Centre. In arriving at an inflation rate, the inflation-adjusted real rate must also be safeguarded in order to maintain real returns on the fixed income instruments.
Venkatesh N. Muttur,
Hubli
