The criticality of a coordinated policy approach in covid times
- Monetary and fiscal authorities need to act in tandem to achieve better outcomes on driving growth and taming inflation, write Ashima Goyal and Akhilesh K. Verma
India’s move to a rules-based macroeconomic framework was based on the global thinking that since the central bank cares more for price stability and the government for growth, giving the central bank independence will deliver price stability, leaving the government to focus on reforms to ensure sustainable growth. As each works on its objectives, social welfare is maximized while ensuring consideration of the long-run consequences of short-run actions. But certain special features of the Indian economy make monetary-fiscal coordination necessary. If rules are interpreted flexibly, they allow coordination.
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