Wednesday, November 23, 2016

When and when not to worry about inflation

There was a time, say half a decade back, when inflation was the biggest worry in the particular context of infusing cash in the rural economy through MGNREGS. Oh, Rs. 30,000 crores! Look what it is going to do to the nation! Wage-cost spiral! Hyperinflation! Did you say 100%? Make it twice that! We are doomed!
Never mind, that the infusion of whatever amount (which anyway was never realized) was over a year. The main concern then was, though unstated, agricultural laborers will demand increase in wages and this would hit land owners in their pocketbooks.
Look at the situation now. Multiples of Rs. 30,000 crores will be infused into the economy over the next month or so. Yes, “do-it-today” type of bleaching black money is nothing short of printing new money by the government. If corruption had been allowed to continue, no doubt it would be a festering wound, but the short term consequences must be manageable - some leaking out here, some there, in the process helping the economy to keep itself on track. But, this sudden bonanza to the economy? No wonder banks, awash in liquidity, have reduced rates for term deposits.
But, the inflation dogs did not bark. No mention of inflation. Why so?
Raghuram Ekambaram

P.S. I failed in Econ 101. I think it shows in the above post! 

No comments: