Thursday, April 17, 2014

Learn to make the economy strong

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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