The new Governor and the economy

The economic problems of this country are something unique which a world class economist cannot solve overnight or even after several months. Corruption, Black Money and Informal economy are major impediments which RBI cannot control easily unless and until the Government takes the initiative. Inflation is supply linked and RBI has limited say in the matter as the dear money policy can have its own adverse impact  on the growth side. The physical and social infrastructure needed to support the economy can be provided only by the Government for which the political Stability is a must. Laws of the land are strong but their implementation is the weakest creating chaos in the system. Rupee depreciation is an issue which can be tackled only with the active performance of the Government to augment production of quality goods and create proper environment to export with adequate incentives and support. The gap between the rich and the poor has been widening and the poor feel the pinch of inflation and the rich merrily enjoys at the cost of the whole economy on which RBI has limited control. Savings and investment which are linked to the tax structure and  confidence level in the economy are beyond the jurisdiction of RBI. The import of oil at a high cost particularly  when the rupee is at a depreciated level is causing  heavy damage to the cost of production, supply  and inflation, is not  fully under RBI's domain.  The challenges for the new Governor are aplenty and there is no magic wand to put the economy on growth trajectory without inflicting some pains. Herein lies the competence of the Governor to win over the confidence of the Power of the Government and act independently. The task is not that easy as good politics and good economics seldom go together especially when the election is round the corner  and all the parameters of a healthy economy are negative and moving from bad to worse. Wish the new Governor all success.

( This comment is in response to the article Right On, Rajan that appeared in TOI dated 7/8/13)