Freebies are never free: RBI MPC Member Ashima Goyal

RBI’s Monetary Policy Committee (MPC) member Ashima Goyal on Sunday said freebies are never ‘free’ and that when political parties offer such schemes, they need to provide financing to voters and clarify trade-offs. is needed, this will reduce the temptation. Towards “competitive populism”.

Goyal said that when governments provide free facilities, somewhere there is a cost involved, but it is worth spending for public goods and services that build capacity.

“Free gifts are never free, especially harmful subsidies that distort prices,” he told PTI in an interview. Noting that it hurts production and resource allocation and imposes huge indirect costs, such as falling water levels in Punjab due to free electricity, Goyal said such free health, education, air and water damages The ones that hurt the poor the most, come at the cost of quality.

The eminent economist argued, “When parties offer plans they need to make clear trade-offs of financing and such to voters. This will reduce the temptation to competitive populism.”

PM Modi on freebies

Prime Minister Narendra Modi has in recent times hit out at the competing populism of giving ‘rewari’ (free gifts), which is not only a waste of taxpayers’ money, but also an economic disaster that threatens India to become atmanirbhar (self-reliant). may disrupt the campaign. , His comments were seen to be directed at parties like the Aam Aadmi Party (AAP), which had promised free electricity and water for assembly elections in states like Punjab and, more recently, Gujarat.

Earlier this month, the Supreme Court had suggested setting up of a special body to probe “irrational free gifts” given to voters during elections.

On India’s macroeconomic situation, Goyal, who is currently emeritus professor at the Indira Gandhi Institute of Development Research, said, “Indian growth has sustained despite global shocks and rate hikes.”

According to Goyal, even if global growth slows, diversification from China, India’s digital advantage and government efforts to boost exports will support India’s outbound shipments.

Emphasizing that it is possible to increase the presently very small Indian share in world exports, Goyal said that diversification and reforms in the financial sector have improved its stability. “Coordinated fiscal and monetary policy action has worked well to contain inflation while maintaining adequate demand. A hike in real policy rates has raised inflation expectations and stoked inflation expectations,” he said. because they reach positive values.”

In its meeting held from August 3 to August 5, the MPC of the Reserve Bank had decided to raise the benchmark lending rate by 50 basis points to 5.40 per cent to control inflation. This is the third consecutive increase since May.

Inflation was at its peak in April

Asked whether high inflation will become the norm in India and if the country’s inflation targeting regime faces its biggest test at the moment, Goyal said, “The big test has already passed and it looks like The Flexible Inflation Target (FIT) is winning.”

Pointing out that inflation peaked in April and has been falling since then, he said that July was only the sixth month when inflation slightly exceeded the tolerance band, but it has reversed and has been on the rise before or slightly after October. may fall below 6 percent.

“Inflation expectations have fallen. Efforts will have to gradually take them towards the target in a soft landing, even if there is a strong growth recovery,” Goyal said.

Retail inflation stood at 7.01 per cent in June and came down to 6.71 per cent in July. The RBI has been mandated by the government to ensure that inflation remains at 4 per cent with a gap of 2 per cent on either side.

Responding to a question on weakening of the Indian rupee, Goyal said the dollar has strengthened against all currencies due to strong US recovery and rising interest rates. “But Indian reserves and foreign exchange intervention ensured that the rupee’s depreciation was only half of the US dollar’s growth and was much lower than that of other countries,” he said, adding the intervention aimed at allowing the market additional Or to smooth out shooting less. Determination of exchange rates.

Goyal said there is a need for some marginal depreciation in line with the country’s major export competitors and its additional inflation. “India’s depreciation is the same as China’s,” she said.

Published on

21 August 2022

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https://www.thehindubusinessline.com/news/freebies-are-never-free-rbi-mpc-member-ashima-goyal/article65793752.ece

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