This refers to your editorial
Monetary Sovereignty (Business Standard dated 17/4/2014 ). Mr. Bernanke’s observation Put your House in
order is correct in a way that it is for each and every economy to make its
macro economic fundamentals strong through the coordinated approach of the
respective Government and the Central Bank of the country. From this
perspective what we have seen in our economy for the past few years
intentionally or unintentionally, is that Coordination between the Central
Government and the Reserve Bank was virtually absent to say the least. In the
absence of strong economic and administrative measures from the Central
Government, the economy went astray pulling down the macro economic
fundamentals throwing into the wind the safety measures the economy can have
from the external forces that come into play whether it is in the form of
quantitative easing or something else. The GDP
growth which is more dependent on the fiscal measures than monetary measures
has been ignored for various reasons and the RBI has to make a lone battle to
contain the defiant inflation and inflation expectations largely caused by the
inaction on the part of the Government to augment supply through improved
productivity and removal of supply Constraints. The weaknesses of the economy
will naturally manifest in the weakening of the rupee and its adverse
consequences on the flows of resources from international economies. The sum
and substance of Mr Bernanke’s message is that one has to learn to run the
economy strong with appropriate fiscal and monetary measures and expecting
advanced and external economies and their Central Banks to adjust for weaker
economies is neither desirable nor feasible. If it comes that way, it is only a
bonus.
Dr.T.V.Gopalakrishnan
(An edited version of this appeared as letters to editor in Business Standard on the 18th April in response to the editorial Monetary Sovereignity apperaed on the 17th April. 2014).
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