Articles by Ravindra H Dholakia

The current practice of measuring the inflation rate from fixed base weight index is outdated and likely to overstate inflation substantially compared to the chain weighted index used in developed countries. Similarly, the treatment of house rent allowance revisions to estimate the housing Consumer Price Index also significantly overstates the headline inflation. Economy-wide inflationary expectations also need proper measurement. Inflation-targeting framework without proper measurement of inflation rate can involve very high real costs and make the policy counterproductive.

Using the latest consumer price index (combined) series, it is found that the dynamics underlying India’s inflationary process have changed substantially. Significant reduction found in the inflation persistence reflects anchoring of inflationary expectations. Moreover, it is the headline inflation that reverts to the core and not vice versa, as was assumed so far. It implies the absence of any significant second-round effects. These features need to be taken into account for any policy analysis. Attempting to forecast inflation using various econometric techniques, it is found that a combination of alternative models based on mean square errors improves forecast accuracy as compared to any individual model.

This comment points out an erroneous assumption in the calculations and central argument of Rajakumar and Shetty ("Gross Value Added: Why Not the Double Deflation Method for Estimation?," EPW, 15 August 2015) that reverses almost all their inferences and conclusions. If construction and service input prices are also considered in the construction of the input price deflators, the double deflation method may further raise the manufacturing real income rather than depressing it. Conditions under which single or double deflation can better approximate the Index of Industrial Production growth rate are also discussed.

The Reserve Bank of India’s monetary policy stance is based on assertions that there is no trade-off between inflation and growth and that disinflation will result in more growth. This note examines recent empirical evidence on the direction of causality for growth and infl ation, and the short-run costs and long-run benefits of a deliberate policy of disinflation. There is no support for the first assertion because a regular trade-off does exist in India, imposing substantial short-run costs for deliberate disinflation. There is strong evidence for causality from growth to inflation, but the reverse cannot be ruled out. Under such conditions, the RBI should hold nominal growth of money supply and allow supply-side policies by the government to bring down inflation.

If one were to use correct concepts and measurements, it will be seen that labour in Gujarat has actually significantly benefited from high economic growth and productivity gains. Annual Survey of Industries data show that the state has outperformed many others in the level of employment and wage compensation. A critical comment on "Labour and Employment under Globalisation: The Case of Gujarat" (EPW, 28 May 2011).