Inflation targeting irrelevant in Indian context: Economist T N Srinivasan

PTI Posted online: Friday, Mar 21, 2014 at 0000 hrs
Mumbai : Noted academic T N Srinivasan today questioned the efficacy and relevance of CPI-based inflation targeting, suggested by RBI Deputy Governor and his one-time student Urjit Patel, in the Indian context.

"I have serious reservations about its (CPI-based inflation targeting) relevance and applicability in the domestic context," Srinivasan, Samuel C Park Jr Professor emeritus of economics at Yale University, said here.

His remarks came on a day when RBI Governor Raghuram Rajan reiterated his intent to move onto formal inflation targeting based on consumer price index (CPI), as proposed by deputy governor Urjit Patel in a report.

Delivering his keynote address at the convocation of Indira Gandhi Institute of Development Research (IGIDR), where Rajan reiterated his plan, Srinivasan, was however, quick to add that by questioning the theory he is not denying the efficacy of inflation thresholds in some Western countries.

"The empirical framework of this literature (CPI-based inflation targeting) is not behaviourally microfounded and its econometric model is not structural and drawn from such a well -founded theory," said Srinivasan, a former student of IGIDR and batch mate of ex-Governor C Rangarajan.

Patel chaired a committee to revise and strengthen the monetary policy framework which submitted its report in January. The committee suggested a glide path for CPI inflation - an 8 per cent CPI inflation by January 2015 and 6 per cent by January 2016.

"I have to share the blame for any fault in his (Patel) committee's report, for not having trained him appropriately," Srinivasan, who taught Patel at Yale University, quipped.