Maintaining Growth-Inflation Remains Challenging For Global South Nations, Says RBI Governor

Maintaining sustained growth, price and financial stability continues to remain a daunting challenge for countries of Global South, Reserve Bank of India Governor Shaktikanta Das said.

These countries face more difficulty in growth-inflation trade offs, since there is a lot of catching up to do to increase their per capita income and productivity, Das said at the High-Level Policy Conference of Central Banks from Global South in Mumbai on Thursday.

"...Growth is a fundamental necessity for these countries, but it cannot and should not be at the cost of price stability," Das said.

To achieve higher growth, countries of the global south need to step up investments in physical and social infrastructure, leverage technology and innovations and carry out institutional reforms, Das said. All these require congenial public policies, including monetary policies to be growth supportive while maintaining balance with inflation.

In fact, price stability is just as crucial as growth to enable economic agents to plan ahead and reduce uncertainty and inflation risk premium, encourage savings and investments—all of which provide a boost to the potential growth rate of an economy, he said.

This has come as the RBI remains strong on its GDP growth outlook for the July-September quarter and the current quarter, despite a surge in inflation. This is on the back of strong comeback in demand during festive season, it said in the November Bulletin on Wednesday.

Further, fiscal monetary coordination is important for countries of the global south, which have a significant share of lower income population with large developmental needs.

They are most vulnerable to supply shocks, needing fiscal support which puts further burden on limited budgetary resources on these countries.

According to him, the Indian experience in managing supply side situations could be a template for other Global South countries.

While global economy has managed to hold its ground in the highly stormy weather in the past few years, clouds of uncertainty still loom on the horizon, Das said.

Central banks need to work towards more robust, realistic and nimble policy framework, that use monetary prudential fiscal and structural policies synergistically to achieve desired outcomes, he added.