New Delhi, June 27, 2017

Former Reserve Bank of India (RBI) Governor Bimal Jalan today said that inflation targeting cannot work in India. He added that it is because prices depend on a range of factors like monsoon and oil prices over which neither the central bank nor the government has any control.

In a report by PTI, Jalan said, “Inflation targeting is fine for countries like the US and the UK. But we (India) are dependent on rain, import of oil from Gulf countries. In India, there is no point in setting an inflation target.” The comments came at the launch of a book written by RBI Governor YV Reddy.

Speaking about the role of RBI in the process, he said, “What can the RBI do if food prices go up by 40 percent as a result of monsoon failure?” Under the new Monetary Policy Framework, the RBI aims to contain inflation at 4 per cent with a band of (+/-) 2 percent.

Earlier this year, Jalan in an interview to VCCircle an Indian information services group said that Inflation in India is on the lower side and growth is among the highest in the world. Talking on demonetisation he said that despite criticism of the demonetization policy the situation is positive. This positive situation in the present context facilitates the making of the budget.

Meanwhile, Union Minister Venkaiah Naidu speaking on the rollout of GST on July 1 and its impact on prices said, “It will bring down inflation, prices, improve ease of doing business and strengthen the economy in the long run.” PTI reported Naidu as saying, “There might be some hiccups but in the long-term, the GST regime will help consumers and traders as there will be no harassment, inspector-raj, discretion (discretionary powers) to the officers and no (inter-state) check posts.”

[The Financial Express]