Finance minister Nirmala Sitharaman’s statement that inflation is a major challenge faced by countries around the world and that no country can solve it alone appears to have set an agenda for new RBI governor Sanjay Malhotra, who took charge a few hours before she made this statement. In his initial remarks after assuming office, the RBI governor said the central bank has to be alert and agile to meet challenges and cannot remain stuck to continuity and stability.
The statements of Ms Sitharaman and Mr Malhotra, when seen together, appear to hint at an imminent cut in repo rate during the Monetary Policy Committee’s bimonthly review meeting in February. During the tenure of Shaktikanta Das, the RBI remained squarely focused on controlling inflation, sometimes even at the cost of sacrificing some economic growth. Under Mr Malhotra, the RBI could focus on boosting economic growth.
The newfound urgency in New Delhi’s North Block as well as Mumbai’s Mint Road to take measures to promote the economic growth has come after the country’s GDP growth slumped to a seven-quarter low of 5.4 per cent in the July-September quarter, which was much lower than even the most pessimistic projections.
While it is true that the central bank does not have enough tools to control inflation, which was fuelled by supply shortage, the government as well as RBI should remain conscious of the fact that inflation affects an average family the most. The central government as well as state governments should, therefore, chip in to address supply issues to tame inflation.
India is, in fact, still a middle income country in terms of per capita income, which is still nearly half of war-ravaged Iraq’s and slightly less than Africa’s poverty-stricken Angola’s. The government should, therefore, try to balance economic growth and inflation, instead of leaning towards any one of them.
