Multi-pronged strategy

| Updated on July 29, 2011 Published on July 29, 2011

This is with reference to “Record output, stubborn prices” ( Business Line, July 28). It is pertinent to note that prices of perishable items, such as vegetables, are steadily increasing. The rate increase of RBI has had no effect on this. An acceptable argument is that a healthy GDP growth, together with benefits of socially-inclusive government schemes, is putting more money into the hands of the common man and thus consumers are migrating from low-income to middle-income groups and hence, the fast growing demand is outstripping the supply response.

Right at the time when the global economy is showing a nascent recovery, which could assist manufacturers, we are increasing the cost of capital to this sector. The RBI rate increase at this critical juncture could be a two-edged sword. No one step will be able to bring inflation under control. The government must adopt a multi-pronged strategy to contain inflation. Agricultural reform must go hand-in-hand with tuning up fiscal and monetary policies.

R. Narayanan,


Anti-inflationary stance

A hike in the key policy rates by 50 basis points has certainly taken the markets by surprise. The central bank has retained the economic growth estimate at 8 per cent for the current fiscal but has raised its March-end inflation projection to 7 per cent from 6 per cent. The current level of inflation, at 9.44 per cent, is well above the RBI's comfort zone of 4 per cent. The monetary policy stance, therefore, continues to be anti-inflationary and it is clear that the RBI is prepared to sacrifice growth in the near-to-medium term for the sake of moderating inflation.

True, the frequent rate hikes aren't good for the country, as it will slowdown economic activities, but if the past is any indication, let's understand that the central bank is in the right position to judge things and make policy initiatives to take the economy forward.

S. Umashankar


Published on July 29, 2011
This article is closed for comments.
Please Email the Editor