C. Rangarajan, chairman of the Prime Minister’s Economic Advisory Council, is a highly respected economist in the country and what he says is taken as a last word. But the government’s new chief economic adviser, Raghuram Rajan, has chosen to disagree with him publicly. If Rangarajan is venerated in the country, Rajan is well regarded in present-day global economists pantheon. He is credited with having sounded the warning note at a meet of US Federal Reserve at Jackson Hole just before the financial meltdown struck. The public disagreement was therefore a battle royale of sorts.
But then, what was the difference?........
1 comment:
This comment is limited to the following observation attributed to Raghuram Rajan:
“Rajan however pointed out stagflation is a situation when prices are rising but production growth remains stagnant. With India growing at 5 per cent annually, you cannot say India is facing stagflation. In fact, given the current global situation, a growth rate of 5 per cent annually for a major economy like India is considerable. Most other countries economies are either shrinking or growing at far lower pace. Advanced economies generally are growing, if at all, by just about 2.5 per cent.”
Growth at 5 per cent, and inflation at 10 per cent (overtaking the growth rate by 5 per cent), is as good as ‘stagnant’ growth and 5 per cent inflation. Just to point out that Rangarajan was not ‘off the mark’ and that figures in isolation do not mean much in economics. In politics, such statements help to carry the day. We should avoid comparison with developed economies, as such comparison does not lead us to ‘scientific’ and acceptable conclusions.
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