Mr Rajan's concerns

Mr Rajan's concerns: RBI should review its instruments of measuring inflation...

Blaming the tool?

Apropos your editorial “Mr Rajan’s concerns” (Business Standard, July 19), let us remember, the inefficiency and sometimes obsoleteness of data on which RBI builds up its case for monetary policy decisions have been haunting the central bank almost for about a decade now. Dr Rajan’s predecessor Dr D Subbarao also has publicly lamented about this. Having said that, in the Indian context, time is not yet ripe to move out of the focus on inflation based on consumer price index. Here is why.
If we ignore the rise in consumer price index, or bluntly put, the rise in prices of food, beverages and fuel the impact will be on the food-intake and basic needs of the majority of the people of India. In a worst scenario, we may end up in a famine-like situation. More affordable is a slower pace in industry-pushed economic growth.
Banking system and the Indian industry have to learn to manage their resources better and start functioning on lesser margins of profit. Once efficiency is infused into the system and pilferages attributable to inefficient management and corrupt practices are minimised, costs of production including interest costs are bound to come down. We should not encourage the soft option of robbing the small savers by paying negative interest rates(net of inflation, the present interest rate on savings deposits, offered by major banks, which form a substantial portion of bank deposits, is negative!) on their savings and making cheap credit to industry.
M G Warrier, Mumbai


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