Do you think that changes are needed in the higher echelons of RBI as no economic policy is forever. Examine this in light of lessons India should learn from Global Macroeconomics.
The Central Bank of any country sits at the top of its financial system and is assigned with the task of maintaining stability in the economy. Central Banks have always been involved in helping the stressed banks by timely infusion of capital. It is a time for thorough work on the role of Central Banks as many changes are impending in the higher echelons of RBI as no economic system must be forever. It has been seen over the last five years that India has had smooth macroeconomic stability due to a deflationary macroeconomic policy by means of monetary tightening and fiscal contraction.
Substantial rethinking of world economic situation was done after the Global Financial Crisis of 2008. The primary revisions which were done were that the economy should be stabilised by the fiscal policy and not by inflation targeting. Financial regulation was also regarded as compulsory. General thinking which emerged was that one should not ever go back to the practices like inflation targeting and stubborn fiscal policy, etc. which had originally led to the crisis.
RBI has to take bold steps and consider the lessons learnt from global macroeconomics.
ï¿½ Government is taking credit for stable macroeconomic conditions despite the rising unemployment.
ï¿½ RBI which is getting over-involved in instructing the government about the growing importance of fiscal consolidation but has turned a blind eye to the falling fiscal deficit.
ï¿½ Ever since India has focussed on inflation targeting, there has been a substantial rise in real policy rates. This has, in turn, affected the borrowing in the formal sector which has declined and has affected the investment.
ï¿½ Inflation which was already showing a downward trend has also come down significantly due to fall in the oil prices.
ï¿½ India is headed towards the same conditions which had led to a global financial meltdown where the Central Bank lost sight of developing financial crisis due to an extreme focus on inflation.
Published: June 28, 2019 | Modified:December 1, 2019