The Minister of Finance Nirmala Sitharaman stated on Thursday that in order to stabilize the inflation rate, the Reserve Bank must be better coordinated with fiscal policy.
Inflation management cannot be singularly left to the monetary policy, which has proved totally ineffective in many countries, she said at a seminar organised by economic think-tank Icrier.
“The RBI will have to synchronise somewhat, maybe not as much synchronised as other western developed countries would do. I’m not prescribing anything to the Reserve Bank. I’m not giving any forward direction to the RBI but it is the truth that India’s solution to handling the economy, part of which is handling inflation also is an exercise where the fiscal policy, together with the monetary policy has to work,” she said.
There are economies where policy is designed in such a way that the monetary policy and the interest rate management is the one and the only tool to handle inflation, she said.
“I would say India’s inflation management, the word taming inflation or the word keeping it within the tolerance limit is an exercise of so many different activities and the majority of which is outside of the monetary policy given in today’s circumstances,” she said.
There could have been a time when people would have thought this is sacrilegious for the finance minister of a country to say so, she said.