Curbing Inflation Versus Promoting Growth

Curbing Inflation Versus Promoting Growth - A Macro Economic Dilemma

My notes in an attempt to make sense out what is happening between what RBI thinks and what Industry thinks...

I remember my Macro Economics Prof telling us that for an economist it is always difficult to make a choice between "Curbing Inflation" and "Promoting Growth". This can be seen in full colors in what is happening these days in the economic landscape of India.

In an ideal world, improving the output is always better and leads to inclusive growth, however in practical world this process is slow. We cannot improve the output of economy overnight. However, we should also not kill the means of increasing the output as well.

RBI/Govt is under huge criticism that their vision is only one sided. Their means of curbing inflation is by monetary policy of controlling interest rates. The idea is that if there is less money in market, the demand will fall and hence the inflation will fall. This would be a good move if the inflation is only demand pull; however the inflation which we see today is a complex combination of demand pull and cost pull. 

There are more chances that increasing the rates would lead to industrial growth slowing down (which is already beginning to happen). This in turn would hit the economy from two angles. 

1. The economy slows down, growth slows down, supply slows down. 
2. Demand slows down. 

This is a recursive phenomenon which ultimately leads the economy into recession, which will be based on what will fall more. 

The experts always say that if inflation exists, but output/economy is growing at good pace, then it is actually good for economy in long run. This is always a difficult, painful and a little extended path to start off with, but would lead to an inclusive growth.

However still, inflation has always been a sensitive issue for the government. The reason for this is more to do with Social/Political environment. None of the parties are willing to sacrifice the short term gains, which is the vote bank. None of the political parties are going ahead and educating the masses that we need to live with inflation for some time before good economic measures bear some fruits.

I do not have the knowledge and the numbers which the government economists and statisticians have.  The need of the hour is to look at those numbers and decide how much inflation can we withstand and then devise policies to grow the economy in parallel instead of taking a short cut route. The government and political parties need to give support to the economists to come out with policies which are right for the economy.

The Day I tried to become Anna

 This story goes back a year. With all the anti corruption euphoria in air, my wife asked me that why don’t I share my story.

An Year Ago

It was a casual chat with my friend that I came to know about a new notice from BBMP. The notice was requesting the flat owners to submit their property details in a register maintained by BBMP called as Register B. In turn owners could then file an application for a nominal amount to get an extract of it. This extract has now been glorified as Form-B Khata by the touts.

Day 1

The next day, I decided to pay a visit to the nearest BBMP office along with my necessary papers to know the process. I met with the official and asked him to tell me the process. To my surprise he asked me to pay Rs 5000/- and assured me that he will take care of everything and would give me the extract within a week. He also said that certain apartment people have paid more than that, indicating to me that he is doing a favor. I was taken aback!! Perhaps this was my first/second experience of a government official asking for a bribe without any shame. I was lost for words on how to respond and was feeling awkward of the entire situation. I also came to know that the government fee of filing the details was NIL and getting the extract was about Rs 150/-. I came back disheartened and in an ethical dilemma. Then, I thought why I don’t discuss this with my other half, as they always have a different perspective to things.  

I explained the whole episode to her and also about the inner voice which is withholding me to not pay the bribe. However I also told that if I do not give the bribe, perhaps I would never get the extract. Then she said the golden words “Have courage and do what is right”. Listening to this, somewhere in my heart, a resolve was beginning to take some shape.

Day 2

Breakfast time and I was gulping down my breakfast and still pondering on my move. Before leaving to office, she asked me about what am I going to do. I said, I do not know and probably would do something extempore in front of the officer.

So here I was standing in front of the official with all my papers in hand and giving him the reference of our discussion of previous day. He again reiterated about the money. Backed up with my wife’s supporting words, feeling of guilt and an inner resolve, I told him “Sir, I do not want to pay any money apart from the official fee. I do not care how much time it will take. Please give me the application form and I want to file it myself”. I still do not know how I said that, but I do remember the satisfaction that I had and also the expression on the face of the official. A minute passed by, which involved both looking at each other. He asked me to wait for some time. I waited for half an hour after which he asked me to give a written application along with the necessary documents. I submitted all the documents, fully knowing that no processing is going to happen.

A month passes by

About a month or so later, one fine day I got a call on my mobile from the same officer. He told me that the extract was ready and I could come and collect it from his office. I was surprised and at the same time thinking what to expect next. I went to BBMP office and met the official. He handed me the extract and again demanded money. I was shocked!! How could a person fall so low that despite being refused money he still asks for it unashamedly? He argued, telling me that he in-turn would have to give money from top to bottom to the people who signed on that. Building on my new found confidence, I refused him again and told him that I would pay only the government fee. Murmuring something he handed over the extract to me.

First move

I tried repeated this resolve again, when I got my driving license transferred. In this whole exercise, I realize that the first move is always difficult to take. But if you have the right people surrounding you, the courage comes from within. The path to ethics is always difficult but not impossible. I also know that I cannot become Anna overnight, but I could perhaps initiate the process by taking these small steps and try to do what is right.