ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

A+| A| A-

Targeting Inflation, Hitting Production

THE recent behaviour of inflation in the Indian economy exhibits marked structuralist characteristics. In the first place, sectoral price increases have shown notable differences, reflecting specific supply conditions. Secondly, there have been significant fluctuations in the year-to-year inflation rate which are not explainable in terms of the rates of overall money and income growth, thus exposing the hollowness of the monetary authorities' claim of having achieved a delicate balance among money, output and prices. Finally, whether we take the immediate period or a longer one, the inflation targetingexercise of the authorities has achieved nothing; on the contrary, it has been shown to have hurt investment and output. Against the background of the growing all-round pessimism about a slow-down of real economic activity as a direct consequence of liquidity and interest rate constraints, the Reserve Bank of India's claim in its recently-released Annual Report for 1995-96 that "it is possible to target inflation without hurting real economic activity'' is difficult to stomach.

Dear Reader,

To continue reading, become a subscriber.

Explore our attractive subscription offers.

Click here

Back to Top