Praxeology: My Reflexions on India

RBI governor Dr. Raghuram Rajan a day before yesterday described Inflation as a destructive disease . This is his exact statement as reported by the newspapers: “Inflation is a destructive disease. Industrialists complain about high interest rate and when inflation is high at 8 per cent, citizens want to have their savings earning 10 per cent interest to marginally beat inflation. Industrialists want an interest rate of about 5 per cent. Both cannot be satisfied. The mismatch is because of inflation.’’ Delivering the 8th R. N. Kao Memorial Lecture, organised by the Research and Analysis Wing (RAW), here, he said that a long time could be spent in debating the sources of inflation but ultimately inflation came from demand exceeding supply. “It can be curtailed only by bringing both in balance. We need to reduce demand somewhat without having serious adverse effects on investment and supply’’ ( here ). Let’s analyze his statements.   First, as usual, his mainstream definition of

This is what the Hindu news item reported today: “An expert committee appointed to examine the current monetary policy framework of the Reserve Bank of India (RBI) has suggested that the apex bank should adopt the new CPI (consumer price index) as the measure of the nominal anchor for policy communication. The committee felt that inflation should be the nominal anchor for the monetary policy framework. The nominal anchor or the target for inflation should be set at 4 per cent with a band of +/- 2 per cent around it. ( here ). What is the meaning of all these? If we remove all the technical jargon and linguistic trickery of the central bankers and mainstream economists, then, this simply means that the Urjit Patel committee is proposing to steal 4% of our annual wealth! It is as simple as that. Anyone with a sound understanding of monetary economics can easily uncover this hidden agenda of RBI. Inflation is nothing but theft of savers’ hard earned wealth. By