Minutes after the release of data showing retail inflation at a record low of 1.5% in June, the government’s chief economist fired a fresh salvo at the monetary policy committee (MPC) led by Reserve Bank of India governor Urjit Patel.
Arvind Subramanian, chief economic adviser in the finance ministry , said the “paradigm shift“ to low levels of price rise had been missed by everyone, resulting in erroneous reading of price signals.
“This low, heartening number is consistent with our analysis for some time now -and which will be fully elaborated in the forthcoming (economic) survey -of a paradigm shift in the inflationary process to low levels of inflation -a shift that I think has been missed by all, reflected in the large, one-sided, and systematic inflation forecast errors that have been made,“ Subramanian said. His statement, the second in a little over a month, was seen as a criticism of the MPC’s reading of inflationary signals.
Data released by the Central Statistics Office (CSO) showed retail inflation slowed to a record low of 1.5% in June, below the May reading of 2.2%, due to low food prices. Principal economic adviser in the finance ministry Sanjeev Sanyal tweeted: “I share @arvindsubraman’s concerns about deflationary trends. Policymakers should follow real data rather than errorprone forecasting models.“ Data released by the Central Statistics Office (CSO) showed retail inflation slowed to a record low of 1.5% in June, below the reading of 2.2% in May , largely due to low food prices. At the same time, industrial output growth slowed to 1.7% in May , compared with 8% a year ago. The government has been highlighting the need to cut interest rates to boost growth, citing low inflation and investment along with sluggish industrial growth. RBI on its part has defended its position of not cutting rates, citing lurking inflationary pressures.
The MPC had assessed inflation to be much higher than the actual reading and used the analysis to keep rates unchanged.
Several private sector economists too have said the MPC’s reading of the price situation is faulty . Apart from the RBI governor, the MPC consists of two RBI officers and three independent government nominees.
Subramanian’s statement once again suggested the need to cut rates, although he did not mention this specifically .Still, the message was blunt.
On June 8, just a day after TOI front-paged a report detailing the government’s unhappiness over the Reserve Bank’s inflexibility on interest rates, their differences had spilled into the open with Subramanian reacting to the MPC’s decision to hold rates by resorting to the unusual step of issuing a written statement backing a rate cut.
19 Jun 2019
20 Jun 2019