New G-SAP tool is RBI’s way of keeping govt’s interest burden low. But amid inflation concerns, it also has to raise interest rates to prevent price rise.
Economic Affairs Secretary said the inflation target for the period 1 April 2021 to 31 March 2026 under the RBI Act has been kept at the same level as was for previous 5 years.
Current 5-year mandate for flexible inflation targeting requires RBI to keep headline inflation at 4% midpoint of its range & is due for review this month.
Rajan said govt’s ambitious target to make India a $5 trillion economy by 2024-25 was ‘more aspirational than carefully computed’, even before the pandemic.
RBI view represents push back against efforts by govt to relax inflation goal in order to get policy makers to focus more on stimulating economic growth.
Fiscal support should continue till 2023 when India may return to pre-Covid growth levels, said Krishnamurthy Subramanian, adding that the 2-6% inflation band has served India well.
Year-on-year method misses trends in prices, so month-to-month seasonal adjustment should be used. According to this, May-December avg inflation was 4.05%.
As per the BMC, there are 1,025 officially approved hoardings in the city right now. However, any Mumbaikar can tell you that number is a ludicrous underestimate.
Latest report by UN Department of Economic and Social Affairs says global growth to be faster than estimated earlier & India’s 'robust performance' to boost South Asia’s growth.
The Spanish foreign minister says 'the Middle East does not need more weapons, it needs more peace'. Spain has been very critical of Israel’s offensive in Gaza.
Discussion about outcome of Lok Sabha polls continues to boil in cauldron of expectations only from BJP. Now reverse this equation, what if we asked about the performance of the 'loser'?
A good article bringing out the tough task ahead.
“As a debt manager to the government, the RBI is announcing measures to bring down the interest on government bonds, but as inflation concerns have emerged, the RBI has to raise interest rates to prevent price rise.”
Coordinated actions by various arms of the Government are visible only recently. Perhaps, the concerned ministries were consulting each other these past decades too; it definitely was not obvious optically or explicit in the decisions and results. Additional inflation would significantly reduce the debt ratio, even with some shortening of debt maturities or vice versa. In the circumstance it may be to our advantage that RBI is addressing both debt as well as inflation.
In India we are a long way away from desperation, anyway.
Just for the records, as of Jun 2021 the Government debt of Japan will be 237.93%, of the USA will be 108.82% and of the UK 98.5% In contrast, the case of India, the debt ratio at the end of 2019, prior to the pandemic, was 74% of Gross Domestic Product (GDP), and at the end of 2020, it is almost 90% of GDP. So, that’s a very large increase, but it is something that other emerging markets and advanced economies have experienced as well.
The key reason serious inflation often accompanies serious economic difficulties is straightforward: Inflation is a form of sovereign default. Paying off bonds with currency that is worth half as much as it used to be is like defaulting on half of the debt. And sovereign default happens not in boom times but when economies and governments are in trouble.
As can be perceived, most analysts today — even those who do worry about inflation — ignore the direct link between debt, looming deficits, and inflation. A high debt-to-GDP ratio is undesirable for a country, as a higher ratio indicates a higher risk of default.
Tail piece: We will be doing well if we can stick to the inflation targets. I get a feeling we can, despite the second wave.
A good article bringing out the tough task ahead.
“As a debt manager to the government, the RBI is announcing measures to bring down the interest on government bonds, but as inflation concerns have emerged, the RBI has to raise interest rates to prevent price rise.”
Coordinated actions by various arms of the Government are visible only recently. Perhaps, the concerned ministries were consulting each other these past decades too; it definitely was not obvious optically or explicit in the decisions and results. Additional inflation would significantly reduce the debt ratio, even with some shortening of debt maturities or vice versa. In the circumstance it may be to our advantage that RBI is addressing both debt as well as inflation.
In India we are a long way away from desperation, anyway.
Just for the records, as of Jun 2021 the Government debt of Japan will be 237.93%, of the USA will be 108.82% and of the UK 98.5% In contrast, the case of India, the debt ratio at the end of 2019, prior to the pandemic, was 74% of Gross Domestic Product (GDP), and at the end of 2020, it is almost 90% of GDP. So, that’s a very large increase, but it is something that other emerging markets and advanced economies have experienced as well.
The key reason serious inflation often accompanies serious economic difficulties is straightforward: Inflation is a form of sovereign default. Paying off bonds with currency that is worth half as much as it used to be is like defaulting on half of the debt. And sovereign default happens not in boom times but when economies and governments are in trouble.
As can be perceived, most analysts today — even those who do worry about inflation — ignore the direct link between debt, looming deficits, and inflation. A high debt-to-GDP ratio is undesirable for a country, as a higher ratio indicates a higher risk of default.
Tail piece: We will be doing well if we can stick to the inflation targets. I get a feeling we can, despite the second wave.