Monday, July 05, 2010

Opposition moves today

Today, opposition parties are trying to coordinate demonstrations and a `Bharat Bandh' all across India. We've got empty roads of the kind not ordinarily seen:

The focus of these protests is: High inflation.

In many other countries, the political landscape has been one where politicians are relatively reckless about inflation, and the economists and central bankers are the ones preaching the virtues of low and stable inflation, asking for an independent central bank which does only one thing: deliver low and stable inflation.

We find the opposite configuration in India: the RBI (and the economists who run with RBI) criticise inflation targeting, and preach in favour of non-transparency and multiple objectives. I suppose this is a reflection upon the professional skills of economists and central bank staff in India. Most economists in India are brought up on traditional `development economics', which is a different skill set when compared with macroeconomics. Somehow, left wing economists (e.g. the EPW) have come to think that price stability is not that important, and leftist ideas have a remarkably big footprint in India, when compared with what we see in economics worldwide. Another dimension is the self-interest of RBI, which is likely to be pleased at being a central planning agency for Indian finance, and to not be held accountable for anything.

But all is not lost. We might not get central bank reform and inflation targeting through the traditional channel (the pushing by economists and central bankers). But we've got politicians who care deeply about inflation. Indian politicians are convinced that high inflation leads to losing elections. At some point, some team at the Ministry of Finance is going to get sick of the repeated inflation crises, and of having to take responsibility for delivering low and stable inflation.


  1. The another irony is that India is facing protests because of high inflation when everyelse in the developed world, Central Bankers are praying for lil bit inflation and rise in NGDP.

    Its really amusing that RBI is not at all held accountable for price rise (not even once by our momentum focussed and tantrik media). Rather focus will be on hoarding cry, kiling futures markets, banning twitter, reckless taxing and data tweaking.

    Another amazing point is sensex high rise. Inflation will raise corporate profits this quarter too. Inflation is saviour of bulls too. Magical Inflation.

  2. The primary focus of today's "hartaal" was an appeal to rollback oil price increase (wasn't the increase a necessary evil). Isn't it unfortunate that the govt's oil price deregulation stance comes at a time when inflation is high? What policy steps do you think are suitable for RBI in such a situation?

  3. @gk,

    Ironies are numerous:

    1. The ruling congress went on a supposed austerity drive when the governments across the world were trying to provide convince corporates to enhance spending and providing stimulus to economies.

    2. The National Capital gets an infrastructure boost when Commonwealth Games are held here, instead of Commonwealth Games being held in Delhi because of NCR having world-class infrastructure.

    3. Villages like Nayla and various roads/towns get a touch up when VVIPs like Bill Clinton visit them, instead of VVIPs taking that route because of excellent infrastructure.

    4. A driver is set on fire in Mr. Anil Nanda's house and provides a live testimony on a National Newschannel from his deathbed and police takes no action and makes no arrests while it is prompt enough to put 4000 people under custody for the bandh immediately!

    5. We are debating that RBI is pleased to be not held accountable for anything while we fail to recognize the lack of independent oversight when out of nineteen members of the RBI Governing body nine are non-independent, one other is Government representative and another one is a Supreme Court lawyer.

  4. NDA Government had decontrolled fuel prices before 2004 sometime. UPA brought it back. It was a backward step. Good that it has been decontrolled again. The opposition parties should insist on publishing governement's fuel expenses instead of running rasta roko agitations.

    You are right though. Inflation does make politicians nervous. Onion prices have brought down state goverments some years ago.

  5. Your thoughts on this??

    Economics is Hard. Don’t Let Bloggers Tell You Otherwise
    Kartik Athreya∗
    Research Department
    Federal Reserve Bank of Richmond
    June 17, 2010
    In this essay, I argue that neither non-economist bloggers, nor economists who portray
    economics —especially macroeconomic policy— as a simple enterprise with clear conclusions, are
    likely to contibute any insight to discussion of economics and, as a result, should be ignored by
    an open-minded lay public.
    The following is a letter to open-minded consumers of the economics blogosphere. In the
    wake of the recent financial crisis, bloggers seem unable to resist commentating routinely about
    economic events. It may always have been thus, but in recent times, the manifold dimensions of
    the financial crisis and associated recession have given fillip to something bigger than a cottage
    industry. Examples include Matt Yglesias, John Stossel, Robert Samuelson, and Robert Reich. In
    what follows I will argue that it is exceedingly unlikely that these authors have anything interesting
    to say about economic policy. This sounds mean-spirited, but it’s not meant to be, and I’ll explain
    Before I continue, here’s who I am: The relevant fact is that I work as a rank-and-file PhD
    economist operating within a central banking system. I have contributed no earth-shaking ideas to
    Economics and work fundamentally as a worker bee chipping away with known tools at portions
    of larger problems. It is precisely from this low-level vantage point that I am totally puzzled by
    the willingness of many who fearlessly and breathlessly opine about economics, especially macroeconomic
    policy. Deficits, short-term interest rate targets, sovereign debt are all chewed over with
    a level of self-assuredness that only someone who doesn’t know more could. The list of those exhibiting
    this zest also includes, in addition to those mentioned above, some who might know better.
    They are the patron saints of the “Macroeconomic Policy is Easy: Only Idiots Don’t Think So”
    movement: Paul Krugman and Brad Delong. Either of these men will assure their readers that it’s
    all really very simple (and may even be found in Keynes’ writings). Lastly, before you dismiss me
    as a right- or left-winger, I am not. I’m simply less comfortable with ex cathedra pronouncements
    and speculations than the people I have named.1
    The main problem is that economics, and certainly macroeconomics is not, by any reasonable
    measure, simple. Macroeconomics is most narrowly concerned with the tracing of individual actions
    into aggregate outcomes, and most fatally attractive to bloggers: vice versa. What makes
    macroeconomics very complicated is that economic actors... act. Firms think about how to make

  6. Hi Ajay,

    I would like to get in touch with you via email if possible. Could you please drop me a line at

    Thanks and i hope to hear from you soon


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