No trade-off between inflation, growth, says ex-RBI Governor

Bengaluru, PTI | Updated : 18 February 2018, 11:46 PM
No trade-off between inflation, growth, says ex-RBI Governor
No trade-off between inflation, growth, says ex-RBI Governor

Former Reserve Bank of India governor Dr D Subbarao on Sunday termed as false the debate over inflation versus growth, saying there was no trade-off between the two.

Many people, including the trade economists, believe that there was a trade-off between growth and inflation. "I think that is an interesting dichotomy but false one. There is no trade-off between growth and inflation when you see in long term," he said.

Speaking at the two-day thought conclave 'The Huddle' organised by The Hindu publication, Subbarao said in the short term, perhaps, there could be higher growth by tolerating high inflation but in the long term, lower steady inflation was a necessary condition for growth.

He said the government can maintain the price stability and raise growth to potential level. Both the government and the central bank would need to work towards a low steady inflation and consistent growth.

Earlier speaking on the occasion, another former RBI governor C Rangarajan too disagreed that there was any conflict between growth and inflation in the long term but in the short term there could be some implications.

Rangarajan cautioned policymakers to keep 'threshold inflation' well within its limits.   

"I some time use the expression 'Threshold inflation'- the level of inflation beyond which when inflation exceeds, it becomes an impediment to growth," he explained.

He said the acceptable level of inflation was 4 per cent. Recently, plus and minus 2 per cent were also acceptable.

Zero inflation was going to be impossible because when growth occurs different segment grow at different phase, he added.

Former planning commission chairman Montek Singh Ahluwalia rued that sustainable growth took a back seat when the focus was entirely on growth.

"Basic problem, I think, is when we think about growth, we do not focus on sustainable growth. Macro-economic balance means you have to achieve the same amount of demand in the system that will sustain the potential," he said. 

First Published: Sunday, February 18, 2018 11:44 PM
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