Reserve Bank of India Governor Shaktikanta Das has cautioned that the after-effects of the shocks like COVID-19 pandemic, the war in Europe and the aggressive tightening of monetary policy across countries are still unfolding and would warrant constant vigil.

He felt that the research function of the Bank must remain prepared to respond to these multiple possibilities as it has done in the past.

Addressing Annual Research Conference of the bank’s Department of Economic and Policy Research here on Saturday, he said the RBI is in the process of developing a food inflation projection framework, involving eminent agri-experts and market leaders in different food items.

Teamed with ICRIER

A team from the Bank is working jointly with the Indian Council for Research on International Economic Relations (ICRIER) to develop the framework.

He said the department conducted a nationwide survey of farmers, retailers and wholesalers before the pandemic when it was faced with the challenge of explaining food inflation dynamics with greater certainty.

“The department would repeat the survey next month to understand the changes brought out by the pandemic,” he said.

The conference is being held after a gap of more than three years.

Giving an overview of the macro and micro economic challenges in the backdrop of geo-political crises, he said the economics profession today faces one of its toughest times as the global economy has been hit by multiple shocks one after the other. “These shocks have led to globalisation of inflation, with advanced economies facing multi-decadal high inflation,” he said.

Sustained slowdown in economic growth and trade, together with rising concerns about a possible global recession; and deteriorating global food and energy security situation were the other two major shocks that confronted the economists.

“Realignment of global supply chains and policy-induced de-globalisation; and weakening influence of multinational institutions in providing coordinated solutions to address global problems were also major challenges,” he said.

According to him, Emerging Market Economies (EMEs) faced the additional challenge from threats to their external sector stability.

Disruptive trends

The RBI Governor said de-globalisation, climate change and deeper penetration of technology appears to be the most anticipated trend for the future.

This can be potentially disruptive, requiring strategies to mitigate the associated risks,” he said.

Challenges in policy making

The global growth momentum was losing steam and the country was experiencing a slowdown in growth before the pandemic.

Referring to the three shocks that shook the world, he said policy responses in the country had to be swift and wide ranging to contain the adverse effects on the overall macro-financial conditions as well as sectoral vulnerabilities.

“The first major challenge was data collection during the first wave of the pandemic, and the associated statistical break in data,” he said.

During the second wave of the pandemic, which was more lethal, collecting information on sector level stress became even more important for designing targeted policy interventions.

“The crisis thus created the opportunity to explore and harness the power of Big Data, and strengthen direct feedback mechanisms while working from home,” he said.