The FM and the Governor

The Coordinated approach between the RBI and the Central Government to tackle inflation and maintain Growth has been missing practically for the last few years and this has been very open when Dr Subbarao was the Governor. The new Governor Dr Raghuram Rajan on his initial days gave an impression that there will be a coordinated approach and the growth of the economy with price and monetary stability would be the common objectives of the Governments' Fiscal Policies and the RBI's monetary policies. This cannot happen, was the well considered views of many an economists and financial experts in the country. Who ever occupies RBI's Governor's Chair cannot ignore the price stability even at the cost of slight economic growth as the growth is dependent on several other factors of production where the money plays only a supportive role and not definitely the important role as is perceived by many..Inflation is basically caused because of more money chasing a few goods and the control on money supply is the very essence of inflation control.  Growth  should match supply and demand,and money supply has a pivotal role in ensuring the match. All said, the present problem of inflation is definitely not because of money but because of the total mismanagement of the economy for which the Government is solely responsible.Who ever may be the Governor,RBI cannot do much to contain inflation in its traditional way and having a 4% retail inflation target is simply meaningless and chasing a mirage. The gap between the Government and RBI is bound to widen till a new Government takes over and an understanding is reached between them.

Dr.T.V.Gopalakrishnan

(This comment in response to Rajan virus for PC appeared in Business standard dated 3/2/14).