Can you elaborate on this growth inflation trade-off? Aziz: We have gone through these things a number of times that Reserve Bank of India (RBI) versus Ministry of Finance, growth versus inflation that there is this trade-off that exists and that the Ministry of Finance wants growth and RBI wants lower inflation etc. In reality, there is no growth-inflation trade-off; in reality there hasn’t been a growth-inflation trade-off in India or in any other country at inflation levels which are this high. So I would say that the high inflation in itself is one of the critical binding constraints to sustain medium-term growth. So if the government is able to articulate that, that they trust the RBI in bringing down inflation to 4, 5, 6 percent inflation levels and they are completely behind RBI in doing so and that itself is a constraint that needs to be removed before India can see high medium-term sustained growth. I think we would be very pleasantly surprised. Q: Let me make the question more difficult, Indias scourge for the past four years has been low growth and high inflation. Why should a stable government be able reverse this? Baweja: Good question, India does need animal spirits to come back. Local corporates have not been investing for some time and many investment projects have been stuck at the state level. So it is a good question because you need the state level cooperation to go through for an investment cycle to revive. I think with this sort of a mandate the pool for state cooperation will be slightly higher. As I am sure you realize BJP doesn’t have its government in many states and in the upper house as well they dont have a majority so it will be difficult for them to pass legislation that will be immediately growth enhancing. moneycontrol/news/economy/will-bjp-win-translate-into-stability-as-well-as-growth_1088112.html?google_editors_picks=true&utm_source=ref_article
Posted on: Sun, 18 May 2014 14:34:56 +0000
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