7) A strict inflation targetting regime without any concern for growth is not the right approach for holistic development management. Critically analyze.(250 words)

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Topic – Part of static series under the heading – “Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment”

7) A strict inflation targetting regime without any concern for growth is not the right approach for holistic development management. Critically analyze.(250 words)

 

Key demand of the question

The question wants us to discuss the positive as well as negative aspects of inflation targeting and how it affects development of the country. Based on our discussion we have to form a substantive conclusion on the issue. This is to be done in the context of a strict Inflation targeting approach of the RBI, which has been criticized for various reasons with restricting development opportunities being the most important of them

Directive word

Critically analyze – When asked to analyze, you  have to examine methodically the structure or nature of the topic by separating it into component parts and present them as a whole in a summary. When ‘critically’ is suffixed or prefixed to a directive, all you need to do is look at the good and bad of something and give a fair judgement.

Structure of the answer

Introduction – write a few lines about the mandate of RBI to restrict inflation to 4 +/- 2%. Also mention RBI’s recent monetary policy changes like hike in repo and reverse repo rates.

Body

  • Discuss the positive aspects of such a targeting approach on development.  E.g fosters stable macroeconomic conditions; stable inflation rates and expectations- linked to such domestic and business decisions; generates high investment confidence etc.

  • DIscuss the negative aspects. E.g restricts development opportunities, inadequate allocation of public funds for social sectors; propagates social inequality; is insufficient as a measure because of strong association of inflation in India with the supply side etc.

Conclusion– Based on your discussion form a conclusion as to what should be done in this regard. Your opinion should be supported by further arguments in case needed.