“It’s a systemic crisis that India is going through.” — Bimal Jalan
As the markets eagerly await the Reserve Bank of India (RBI’s) mid-quarter review of its policy, the controversy over price stability and growth needs to be understood in the proper context. Economists are fond of using terms from physics to make their discipline look scientific. The concepts of “equilibrium”, “velocity”, “acceleration”, among others, were thus conceived long ago. A more recent entry is “inertia”. It would mean that the economic system gets stuck at particular levels of economic variables, owing to the absence of forces to disturb the state of equilibrium. “Inertial inflation” is one such concept. It refers to a situation when the rate of price increase attains a stable equilibrium, where it remains until a shock is administered to move it to a new position........
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