India’s masked policy confusion8 min read 20 Jul 2016, 03:53 AM IST
The political and the monetary authorities need to work together to ward off the emerging risks to the economy
Storm clouds may be on the horizon for India’s economy while India’s policymakers continue to emphasize the relatively high real gross domestic product (GDP) growth of 7.6% in FY2016 along with macroeconomic stability. Recent monetary policy and fiscal policy announcements have not been encouraging, but in fact confusing. The Reserve Bank of India (RBI), as we shall see below, now has two monetary policy frameworks—inflation targeting and “monetary targeting’’—that it wants to follow and these could be contradictory, creating confusion about monetary policy intent. RBI’s policy quandary has to an extent been driven by the poor quality of the fiscal adjustment that the government has undertaken. The Indian government’s fiscal consolidation efforts thus far have been an accounting mirage.