India’s fiscal and monetary policy – studies in contrast

Business Standard writes a good editorial on the need for fiscal deficit consolidation in India. It is a timely reminder:

The deterioration in fiscal parameters in 2008-09 and 2009-10 has been on account of both the fiscal stimulus and pre-election populism…..If during the downturn monetary policy had to accommodate the needs of fiscal policy, in months to come, fiscal policy must step in and free monetary policy of some of the burden. This means reducing revenue and fiscal deficits, improved expenditure management and revenue mobilisation. [More here]

How do you rate the chances of this happening? Well, I do not rate it very high.

That said, India’s monetary policy continues to shine like a beacon of hope. It is a breath of fresh air in terms of policy competence. When others are talking of exiting easy monetary policy, the Reserve Bank of India has gone ahead and done it. The press release that announced the monetary policy decisions taken today is clear and crisp. Kudos to RBI. This press statement should mollify or even dismiss the critics who questioned RBI’s communication strategy and style some time ago.

Now, if only there is some governance and fiscal prudence, India’s flag would be flying rather high. That it is not explains why the world is still so much in thrall of China, no matter how unjustified it is.

27 Oct 2009 | By V Anantha Nageswaran | Concerning Economic and Public Policy, India, Monetary Policy
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