n lation and          siness    le      7.21
     heAlthy rAnge of inflAtion                                      (ii) The Government of India accepted
                                                                            a range of 4 to 6 per cent inflation as
     Higher inflation and higher growth as a
                                                                            acceptable for the economy citing the
     trade-off was questioned in the late-1980s by
                                                                            world average of 0 to 3 per cent at the
     the developed economies as the economic and
                                                                            time (1997–98).64
     social costs of higher inflation also needed policy
                                                                    (iii) The RBI Governor C. Rangarajan
     attention—a costly ‘trade-off’.61 In coming times,
                                                                            advocated that inflation rate must come
     most of the world economies went in favour of a
                                                                            down initially to 6 to 7 per cent and
     stable inflation (i.e., inflation targeting) though
                                                                            eventually to 5 to 6 per cent on an average
     the idea has been protested.62 India also started
                                                                            over the years.65
     inflation stabilisation (informed targeting at WPI)
     by the early 1970s. It was in 1973 that inflation              (iv) The Tarapore Committee on Capital
     crossed the 20 per cent mark on account of the                         Account Convertibility recommended
     international oil price rise and the government                        an acceptable range of 3 to 5 per cent
                                                                            inflation for the three year period (1997–
     (the Indira Gandhi Government) devised a severe
                                                                            98 to 1999–2000).66
     anti-inflation package which included directly
     restricting the disposable incomes of the people                  In the recent times (June 2003 onwards) the
     (this measure was used for the first time in India63).      government/the RBI has maintained a general
     The package had an impact and by March 1975                 policy of keeping inflation below 5 per cent
     the inflation calmed down to 5.7 per cent. This was         mark—at any cost—as if fixing 4 to 5 per cent as
     the time when the RBI was given a new function              the healthy range of inflation for the economy.67
     ‘inflation stabilisation’ and India entered the era               The medium-term objective (i.e., target) of
     of monetary controls for inflation. With inflation          the government is to keep inflation in the 4–4.5
     targeting there started a debate concerning the             per cent range.68 One thing should be kept in
     healthy range of inflation for the Indian economy,          mind that inflation has always been a political
     i.e., by mid-1970s. We may have some official               matter in the country. Every time the RBI tried to
     and non-official versions of the suitable range of          check the rising inflation via monetary measures
     inflation pointed out from time to time:                    a majority of experts objected to it by calling it
                                                                 a move to sacrifice growth for lower price levels.
           (i) The Chakravarty Committee (1985)
                                                                 A tighter monetary policy decelerates investment
                treated 4 per cent inflation as acceptable
                for the economy in its report on the               64.   Ministry of Finance, Economic Survey 1997–98 (New
                monetary system. He also added that                      Delhi: Goverment of India, 1998), p. 92.
                                                                   65.   Rangarajan, ‘Development, Inflation and Monetary
                this level of price rise will facilitate the             Policy, pp. 61–63.
                purpose of attracting investment for the           66.   We may refer to almost all the credit and monetary
                desired level of growth.                                 policies announced by the RBI during this period.
                                                                   67.   As the RBI put it in its Credit and Monetary Policy
       61.    S. isher,    odern Central an ing , in . Capie             Review of July 31, 2007.
              etal.,The Future of Central Banking, The
                                                                   68.    t should e noted here that the level of in ation was
              Tercentenary Symposium of the Bank of England
                                                                         below 5 per cent till the new Government came to power
              (Cambridge: Cambridge University Press, 1994)
                                                                         and the outgoing Government was blamed to freeze
              pp. 262–308.
                                                                         the in ation data to a more politically digesta le level
       62.    Paul Krugman, ‘Stable Prices and Fast Growth: Just         (i.e., below 5 per cent). The new Government in the
              Say o , Economist 31 (1996): pp. 15–18.                    process of preparing a producer price index (PPI) has
       63.    Ahluwalia and Little, India Economic Reforms and           also committed to ma e the in ation data automated
              Development, p. 2.                                         like the share indices.