In spite of phenomenal increases in the basic prices of Metals and Oil, which we import to run our economy, our economy is ticking and moving forward reporting marginal increase in inflation rate. This shows that we have found a way to scale up volumes and efficiency. We are also increasingly shedding cost plus factors, as is evident in air travel and communication costs which are no longer operating on social basis but are driven by market forces and hence competitive. I still remember the news stories, (similar to the ones which we are seeing in Oil sector today), that Indian Airlines request for revisions are not decided by the government and hence the Airlines is likely to report losses!
Therefore monetary policies should factor in structural changes and encourage on a sustained basis the attempt to bring an impetus to growth. We are at this stage a unique economy where our knowledge workers are gaining recognition and bringing in large profits which are retained in the nation. Consumption is increasing and goods are being delivered to meet the demand. Sustained corporate earnings growth across sectors is aided in no small measure by volume growth.
So we need to have our own policies, which in this case may even call for increased deficit financing or using the forex reserves. We need to therefore find the way to sustain this growth through monetary policy and be very cautious in our moves lest, this momentum gained over ten years of 5 year planning is challenged.
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