August 18, 2013 3:43:27 am
A day after Indian financial markets were hit by the impact of capital controls set by the Reserve Bank of India,Prime Minister Manmohan Singh on Saturday called for fresh thinking on macro-economic policy-making,including the debate on growth and inflation.
And I would venture to think that the time has come when we should revisit some of those areas the possibilities and limitations of monetary policy in a globalised economy,in a fiscally constrained economy, Singh said after releasing the fourth volume of RBI History: Looking Back and Looking Ahead at his residence.
He said despite the upheavals,India is not about to face another economic crisis like the one experienced in 1991. There is no question of going back to 1991. At that time foreign exchange in India was a fixed rate. Now it is linked to market. We only correct the volatility of the rupee, he said.
Singh acknowledged that Indias current account deficit was still high and blamed elevated imports of gold as a key factor. We seem to be investing a lot in unproductive assets, he said.
Meanwhile,outgoing RBI Governor D Subbarao said inflation control will remain the focus of the banks strategy to deal with the current crisis,despite Finance Minister P Chidambaram saying in parliament that restoring growth should be the overarching priority.
RBIs hawkish measures to keep the rupee from dipping contributed to the largest fall in the markets in two years on Friday.
As stock,currency and bond markets measured their losses over the weekend,Subbarao said,The Reserve Bank is committed to inflation control,not because it does not care for growth but because it does care.
Addressing his successor Raghuram Rajan,Subbarao said,The challenge for you will be how you will use your formidable intellect,scholarship and global experience to shape the Reserve Bank as a knowledge institution that will set standards for how an emerging economy central bank should manage macro economic policy in a globalising world.
In 1991,India had to take an IMF loan to set the economy on a course of liberalisation. With the government dithering on reforms,the economy has slipped in the last one year.
The GDP growth rate,down to 5 per cent in FY 13,is expected to be just a shade better at 5.5,and the current account deficit that has touched 4.8 per cent is expected to hover at over 4 in FY 14,even as consumer inflation has remained in double digits.
(With PTI inputs)
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