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The Indian economy is facing a complex situation with high inflation and a need to stimulate growth. Union Commerce Minister Piyush Goyal has boldly advocated for the Reserve Bank of India (RBI) to cut interest rates, arguing that it's crucial to inject more dynamism into the economy. His stance marks a significant shift in public discourse, as he becomes the first government minister to publicly endorse calls for re-evaluating the nation's inflation targeting framework.
Goyal's rationale is based on the belief that the current inflation targeting framework, which heavily focuses on consumer price index-based inflation, is flawed. He emphasizes that food prices are influenced primarily by supply factors, not demand, and therefore should be excluded when determining monetary policy. This resonates with earlier suggestions from the government's 2023/24 economic survey, which also advocated for an inflation targeting framework that excludes food.
While the RBI has been steadfast in its commitment to the existing inflation targeting framework, citing the importance of controlling overall inflation, Goyal's call for a change in approach has sparked a debate. The persistence of high food inflation has undeniably impacted middle-class budgets, potentially hindering urban spending and slowing economic growth. The RBI, however, maintains its position that controlling core inflation is paramount, arguing that this will ultimately contribute to a more stable economy.
Source: RBI should cut interest rates, look through food prices: Piyush Goyal