Growth in coming quarters will depend on all three "arrows" being put in play, Governor Raghuram Rajan wrote in his second bi-monthly monetary policy review.

The term "three arrows" was first used by Japanese Prime Minister Shinzo Abe to breathe life into the country's floundering economy.

The first arrow refers to printing money and easing monetary policy to revive spending.

The second arrow relates to spending money by providing bouts of stimulus to the economy.

The third arrow and a more difficult one is that of structural reforms.

This is something the successive RBI Governors have spoken about in their policies pronouncements, albeit indirectly. Rate hikes have limited impact on taming inflation because of structural deficiencies of the system.

For instance, about 40 per cent of the total foodgrains and vegetables produced in the farm never reach the fork because of inadequate storage, improper transportation etc. These structural flaws have kept inflation high for a long time because of which RBI has not been able to bring down the interest rates.

In the absence of structural reforms, the RBI has no option but to control demand to tame inflation. While some government schemes like MGNREGA have helped in reviving demand and broad-basing it by bringing rural areas into the fold, the government will do well in implementing it well so that the spending (second) arrow does not stray off its course.

While the second and third arrows, as specified by Abe, are critical for the Indian economy as well, the time does not seem too apt to unleash the first arrow just yet. The RBI seems to understand this clearly.

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