At cross-purposes

| Updated on December 29, 2014 Published on December 29, 2014

Pulapre Balakrishnan’s article ‘Inflation targeting does not lift growth’ (December 29) suggests that profit expectations rather than inflation power growth-driven investment. Profits are generated by consumer demand. High price regime has the potential to raise cost of inputs (such as high wages), escalate selling price and reduce consumer demand. Besides, even at stable or reduced prices, high inflation could reduce consumption of the product or service depending on its place in the elasticity of demand phenomenon.

Unlike the US, India is a country of the poor who do not have access to government doles when unemployed. The rising cost of living adds to their misery. Controlling inflation, therefore, is a key responsibility of the government. The problem is that it has become the baby of the RBI while growth is in government’s lap; but the two do not work in tandem always.

YG Chouksey


Inflation targeting does impact growth indirectly as it ensures improvement to the buying capacity of consumers, which can spur growth. Falling commodity prices will improve the margins of corporates. Well leveraged corporates will start investing again if they see a demand for their product — which again depends on consumer spending — which will improve with falling oil prices and lower inflation. It’s just that we’ve been caught in the wrong cycle for a while; things seems to be falling in place now, slowly.

Government spending on infrastructure is necessary so as to create jobs and growth — but getting in private players to invest in infrastructure projects will take time. Even with falling interest rates, private players whose balance sheet is already stressed would want to reduce their borrowings rather than borrow more. Government should find alternate ways to fund investments in infrastructure. Targeting inflation has its merits and since inflation in India was due to cost push inflation, there was not much impact on impact on the unemployment rate.

Sridhar Narasimhan


One cannot blame the RBI for inflation targeting. Low inflation means low interest rates, which means one can borrow to consume and businesses can borrow to invest. So, low inflation is the key to sustainable growth. The individual decision to borrow depends on the amount of EMI one can spare. This can be influenced by interest rates. But food inflation can be reduced only by supply augmentation and this will take a lot of time. We cannot increase supply in a day, so the RBI is right in asking for fiscal consolidation from the government so that demand is kept under control. For sustainable growth, inflation targeting is a must. We cannot be compared to the US because of entirely different frameworks operate in the two countries.

CR Arun


Good suggestions

This is with reference to the editorial, ‘The PPP route to growth’. With the RBI allowing a 5:25 scheme in existing infrastructure projects, problems pertaining to finance in PPP projects should be addressed as asset liability mismatch with funds not available for long-term funding in infrastructure were the main bottleneck. Now if funds are available for as long as 25 years, it should facilitate many ongoing projects stalled for want of funds. But as rightly mentioned in your editorial, if exit clauses are also tweaked to ensure that a developer can exit smoothly from a project, it is good.

Bal Govind

Noida, Uttar Pradesh

Targeting peace

The low-intensity IED that exploded in the heart of the city is nothing but an attempt by disgruntled elements to disturb the peace. The city which was in the grip of rumours of a possible terror attack after the arrest of the alleged handler of ISIS’ Twitter account, was stunned as the tragedy unfolded. With the city police extending the deadline for keeping open hotels and restaurants and allowing revellers to party till the wee hours of the morning on New Year’s eve, celebrations will take a backseat.

NJ Ravi Chander


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Published on December 29, 2014
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