ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Monetary Policy Muddle

WHEN the economic reforms were launched, it was repeatedly emphasised that the centre-piece of the strategy to improve the macro-management of the economy was "a credible fiscal adjustment, to be followed by continued fiscal consolidation thereafter". Towards that end, under the stand by arrangements with the IMF and the World Bank's structural adjustment loans, the government had committed itself to reducing its gross fiscal deficit from 8.4 per cent of GDP in 1990-91 to 6.5 per cent in 1991-92, 5 per cent in 1992-93,4.7 per cent in 1993-94 and then stabilise it at 3 per cent in subsequent years. But now the finance minister is singing a very different tune. In a recent discussion in the Rajya Sabha, Manmohan Singh cautioned MPs against too rapid a reduction in the fiscal deficit which, he said, would lead to unemployment. "As a government, we have to have a balance and have deliberately adopted a gradualist strategy", he told parliament. This is making a virtue of necessity, or rather of helplessness. The finance minister has tried to control the fiscal deficit and failed miserably and is now covering up the failure with talk of a 'gradualist strategy'.

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