....The RBI believes the only way to combat inflation is through rate hikes. Milton Friedman must be happy with the conservative monetarists who follow textbook undergraduate macroeconomic theory. The simple Friedman logic is: the only reason for inflation is over-supply of money. According to Friedman’s k-per cent rule, if the money supply is squeezed, prices will come down. It is fallacious on many counts, just two of which are: nobody has succeeded in fighting food inflation or fuel inflation through monetary policy. Demand-side controls will not succeed in a country like India. It has to be dealt with on the supply side, which means good governance. Inflation, driven by cost-push factors and supply-side constraints, cannot be fought through rate hikes......
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