Don’t Let the Guv off Easily

This refers to ‘Trilemma that Felled Guv’ (ET, Aug 14). It is true that high fiscal deficits and structural rigidities tend to reduce the effectiveness of monetary policy as a stabilisation tool in an open economy. But, in the Indian context, monetary policy is no less consequential than fiscal policy in affecting investment decisions. In fact, in an open economy, policy lags are normally much shorter for monetary policy than fiscal policy. Thus, interest rate changes may produce a quicker impact on investment than, say, a change in tax policies. India’s current economic slowdown has resulted primarily from “The Great Policy Paralysis”, slow administrative decision making and a sustained hike in interest rates culminating in creating a poor business environment, hurting investment and growth. A slow-growing global economy has not helped us either. To absolve Dr Subbarao by saying that he was left with no option but to fight inflation and that he could not have focused on growth simultaneously is a little hard to digest. His fault lay in pressing the interest rate pedal for far too long than was required. 

- MANISH KUMAR, Patna (ET)