RBI MPC member raises questions over inflation data, says govt needs to modernise calculation method

Ravindra Dholakia, a member of  Reserve Bank of India’s (RBI) monetary policy panel, has raised questions over inflation data saying “there was an urgent need to modernise the way changes to prices are being calculated by the government.” “Inflation-targeting framework without proper measurement of inflation rate can involve very high real costs”, Dholakia, a retired professor from IIM-Ahmedabad and dovish member of the panel, wrote recently in the Economic and Political Weekly. He opined that fixed base weight index for measuring inflation is not the best practice, adding that most of the developed nations follow the practice of changing the base of the index almost every year. “If a country accepts inflation-targeting framework, it has to be extremely serious and cautious about the correct and realistic measurement of its inflation rate,” Dholakia said. [caption id=“attachment_4495283” align=“alignleft” width=“380”] Representational image. Reuters[/caption] Dholakia’s comments follow recent controversy over the government’s revision in India’s GDP growth rate during the previous UPA era. The new numbers showed India’s economic growth rate averaged 6.7 percent during the Congress-led UPA regime as compared to 7.3 percent under the present government. Previous numbers had put the average growth rate during the 10-year UPA rule at 7.75 percent. The Opposition called revision in the GDP data a “hatchet job”. In August, Dholakia had dissented in the bi-monthly monetary policy by not favouring a 25 basis points hike in benchmark repo rate to 6.25 percent. Data released a few days ago showed the economy suffered an unexpectedly sharp slowdown in the July-September quarter, when annual growth slid to 7.1 percent from the two- year high of 8.2 percent posted in the previous quarter. Weaker global oil prices and domestic food prices are expected to drag the headline inflation rate below projections. In October, inflation eased to 3.31 percent. The RBI has previously projected inflation at 3.9-4.5 percent by the end of March and growth at 7.4 percent for the current fiscal year to March 31. But both are likely to be revised downwards, analysts said. However, there are some who expect inflation to rise faster, still see more rate rises ahead. Among them is Goldman Sachs, which expects the RBI to raise rates by a total of 75 basis points between April and December of 2019. With inputs from agencies