Amid a debate over freebies, an RBI rate-panel member said such schemes are “never free”.
“Freebies are never free… especially harmful are subsidies that distort prices,” PTI reported quoting Ashima Goyal, Reserve Bank of India’s Monetary Policy Committee member, as saying.
This hurts production and resource allocation and imposes large indirect costs, such as the water table falling in Punjab due to free electricity, and come at the cost of low quality health, education, air and water that hurt poor the most, the wire agency reported citing Goyal.
According to the report, she said a cost is imposed somewhere when governments provide freebies, but this is worth incurring for public goods and services that build capacity.
“When political parties offer such schemes, they must be required to make the financing and trade-offs clear to voters, Goyal, also the emeritus professor of economics at Indira Gandhi Institute for Development Research, said. “This would reduce the temptation towards ‘competitive populism.”
India growth is sustaining despite continuing global shocks and rate rises, PTI reported citing Goyal.
While observing that India has done better than most expectations and in comparison to many countries under challenging conditions, she said among reasons for this are growing economic diversity that helps to absorb shocks.
In the minutes published after the MPC’s meeting on Friday, Goyal said the repo rate hikes have not as yet slowed economic recovery. Coordinated fiscal and monetary policy action to reduce inflation, while maintaining adequate demand has worked well.
Inflation peaked in April and has been falling since then, PTI reported citing Goyal. July was only the sixth month when inflation slightly exceeded the tolerance band but it has reversed and may fall below 6% before October or slightly later.
“Inflation expectations have fallen. The attempt will be to further slowly guide them towards the target in a soft landing, even as a robust growth recovery takes hold.”