Inflation is not amenable to monetary policy alone.

The author's arguments and suggestions to have a tight monetary policy to contain inflation are sound and valid in an economy where Fiscal and Monetary policy measures move hand in hand and there is strong coordination between the Government and the Central Bank of the Country. This ideal situation is missing in our economy and both the Government and RBI are moving on parallel lines. The Fiscal policy pursued for the past few years and the monetary policy pursued were not aligned and focused to contain inflation. The fiscal policy measures increased taxes all around to fetch better revenues ignoring inequality of income, infrastructure, production, investment,increase in the cost of funds and the ease of doing business. Despite all types of taxes,the fiscal deficit remains unchecked reflecting lack of discipline on the expenditures. The Current Account Deficit and the value of rupee also do not have any favourable impact and they have also  affected the price levels and cost of inputs for physical production. Monetary measures alone  cannot be of any use in an economy which is influenced more by fiscal and administrative measures. Inflation in India is not interest rate sensitive and it needs a different diagnosis and treatment altogether.

Dr T.V.Gopalakrishnan
This comment is in response to an article on fighting inflation by Dr Tarapore in Business Line dated 13/12/12)