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Mint Quick Edit | India’s Goldilocks economy: A peace dividend of monetary-fiscal policy harmony - News

Mint Quick Edit | India’s Goldilocks economy: A peace dividend of monetary-fiscal policy harmony

1 day ago 2

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We should be thankful for the peace that prevails between makers of monetary and fiscal policy in India. (Pixabay)

Summary

It’s a striking contrast. India’s inflation has inched up but is below RBI’s target, while America’s runs over-target amid hostility between the Fed and White House. Thank the lack of friction between Mint Street and North Block after the adoption of inflation targeting.

With food prices falling less, headline inflation has shown a modest uptick in December. Government data released on Monday put India’s consumer price index-based year-on-year rate of inflation at 1.33%, up from just 0.71% in November.

Despite the rise, it’s still below the lower end of the Reserve Bank of India’s (RBI) 2-6% target range. Some of the rise is also due to a normalization of the base effect. On the whole, India is still in a so-called Goldilocks phase of low inflation amid rapid economic growth.

But perhaps what we should be thankful for is the peace that prevails between makers of monetary and fiscal policy in India. By contrast, in the US, an open stand-off between the Fed chair and White House could end in institutional damage.

News of a criminal probe being pursued by the US government against the Fed over a building renovation project, as disclosed by the latter’s chief Jerome Powell, has startled markets and stoked fears of the central bank losing its autonomy on policy.

India’s own move in 2016 to expand RBI’s authority is widely appreciated for its success on price stability. An independent central bank is a big win for any economy—if one can keep it.

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