Tag: inflation flexibly while empowering citizens

Introduction: In response to Question No. 4 of the Discussion Paper on the Review of the Monetary Policy Framework – “Should the target inflation level be removed, and only a range be maintained within the overall ambit of maintaining flexibility without undermining credibility?” This blog argues that India’s economic reality requires a shift towards a flexible range instead of a rigid inflation target. India’s diversity, the complexities of its economy, and the lived experiences of its people make it imperative that inflation is not viewed as a narrow statistic but as a broad, dynamic measure reflective of real conditions. Inflation: Beyond Numbers In the Indian context, inflation should be measured across a broad spectrum. No single location or market – whether production or consumption – can represent the vast diversity of the Indian economy. Prices, when conveyed in real-time through appropriate media, could transform the construction of indices into a people’s initiative. Here, the writings of Professor B. R. Shenoy remain highly relevant. He famously said: “We are, instead, seeking to make the traders scapegoat. Monopolies and semi-monopolies apart, contrary to popular belief and the emphatic assertions of administrators, traders have no more control on the prices than the thermometer has on temperature.” This clarity is what India needs today – to recognize that inflation reflects deeper structural realities, not just surface-level “culprits.” Historical Context India has faced persistently high inflation since 1957, in sharp contrast to the pre-1936 period, when the rupee maintained strong purchasing power. The difference between classical and modern economists is striking. Classical economics, much like generalist medicine, offered broad theories, while today’s macroeconomics resembles specialized surgery – sophisticated, data-heavy, and often discussed in academic conferences worldwide. India itself has transformed: from the Planning Commission to NITI Aayog, with over 120 think tanks and the Department of Economics and Statistics harnessing data nationwide. Yet, inflation has remained a subject of debate, discussion, and contention – even cynicism – among citizens and commentators alike. Why a Flexible Range Matters The Discussion Paper itself acknowledges that no single measure of inflation suffices. The Reserve Bank of India’s analyses now resemble forecasting the monsoon – algebraic models, GDP comparisons, international parallels, and projections.In such an environment, a rigid target risks losing both relevance and credibility. A flexible range, by contrast, would capture India’s diversity while maintaining the central bank’s credibility. Currency, Employment, and Prosperity Inflation cannot be managed in isolation. Monetary policy must also address employment generation – ensuring every able-bodied person has access to dignified work. Respect for currency – treating money as not only a medium of exchange, but also a store and measure of value. Savings and professions – honoring the contributions of both traditional and modern professions, as well as farmers and workers in the so-called “unorganized” sector. Radical proposals – such as introducing new denominations (₹300, ₹400) to symbolize the value of farmers’ and workers’ contributions – could reinforce this respect. Equally, proposals such as 23 new RBI regional offices would enhance inclusivity by reflecting India’s diversity in its financial governance. Rethinking Inflation Measurement One drastic and radical proposal is that inflation measurement should not be conducted by the Government or the RBI. Instead, an independent and broader process should handle this responsibility, while the RBI and Government merely respond to the results. This decentralization would improve credibility and public confidence. Building Public Trust For monetary policy to succeed, public trust in currency must be restored. Some steps include: – Redeeming damaged notes easily at post offices. – Encouraging deposits in Postal and Grameen Banks. – Mobilizing ₹5–7 lakh crore into postal accounts without disruptive demonetization. – Reassuring citizens that ₹500 notes will not be demonetized. – Deploying 30,000–40,000 local messengers (not celebrities) to build trust. – Preventing misuse of cooperative banks. – Counterfeit currency should be dealt with through intelligence operations, not by penalizing innocent citizens. From Poverty Elimination to Prosperity Creation India must go beyond a constant rhetoric of “poverty alleviation.” The real goal should be prosperity creation – rooted in employment, savings, currency stability, and flexible inflation management. Food inflation, given its seasonal nature, could even be measured through a separate index for production and consumption regions. The Role of Technology and CitizensInflation management must evolve into a real-time, citizen-driven initiative. – Homemakers monitoring household prices. – Farmers and traders reporting agricultural trades. – Manufacturers sharing production costs. – Service providers reporting fees. All of this could be enabled by dedicated apps, processed by PARAM supercomputers, with daily insights generated for policymakers. Beyond “War on Inflation” Inflation is often framed in adversarial, militaristic terms – a “war” to be fought. But this language is misplaced. Civilian issues require calm, precise action, not war metaphors. Here, India’s cultural philosophy offers guidance. Praxeology (theory of action) and the Bhagavad Gita’s Karma (theory of action) both emphasize constructive, disciplined engagement – not hostility. The Way Forward India is a professed market economy. Prices ultimately move with demand and supply, and consumer choice is the ultimate determinant. Thus, while the government’s role remains the promotion of economic efficiency, inflation management must be anchored in discipline, self-discipline, and informed citizen participation. The flexible range approach ensures that monetary policy remains credible, realistic, and aligned with India’s needs. Conclusion Inflation targeting in India must evolve. A rigid point target neither reflects India’s diversity nor inspires confidence. Instead, a flexible range, combined with a renewed focus on employment, respect for currency, financial inclusion, and citizen participation, will serve India better. Ultimately, monetary policy must not be about battling inflation as an enemy, but about enabling prosperity. As in cricket, where concentration is always “on the ball,” policymakers too must stay focused – not distracted by excessive commentary, but guided by clarity, discipline, and purpose. India’s future lies in anchoring inflation flexibly while empowering citizens, fostering employment, and building prosperity.