Prodding India to continue on the reform path, Nobel laureate and noted economist Lars Peter Hansen today said the Reserve Bank’s prime focus should be on inflation management and it should not be expected to fix the nation’s macroeconomic challenges.
“The central bank (RBI) should continue to focus on inflation. I think sometimes people expect too much from the RBI,” Hansen told reporters here.
Noting that India is on the reform path, Hansen said the government should encourage foreign direct investments in more areas and change the restrictive labour laws.
Comments come amid RBI Governor Raghuram Rajan’s decision not to opt for a second term, reportedly upset by the criticism from a section of the ruling front led by nominated Rajya Sabha member from BJP Subramanian Swamy, who called for his removal for “hurting” the economy with his hawkish inflation stance.
The wholesale inflation accelerated for a third straight month in June, hitting 1.62 per cent on costlier food and manufactured items after remaining in the negative territory for more than a year on poor demand.
The hardening of the WPI index follows an uptick in consumer price inflation, which hit a 22-month high of 5.77 per cent in June.
In the June policy review, Governor Rajan had left the interest rates unchanged, citing rising inflationary pressure, but hinted at a reduction later this year if good monsoon helps ease inflation.
While applauding RBI’s efforts to make balance sheets of public sector banks transparent, Hansen cautioned that the central banks, whether in India or in the US, should not be looked at to fix the macroeconomic issues.
The 2013 economics Nobel winner was speaking to reporters at an event organised by the Indian School of Business (ISB), Hyderabad.
Observing that it is difficult to predict the consequences of Britain’s exit from the European Union, Hansen hoped the UK does not turn protectionist (post Brexit) and that trade barriers remain low so as to not adversely impact the already fragile global economy.