central bankers ’ speeches • low and stable inflation is an essential pre - condition for securing medium - term growth. only in a situation of price stability can consumers and investors make informed decisions. • the reserve bank's monetary stance has been aimed at restraining demand and at managing inflation expectations. • admittedly, monetary tightening has resulted in some sacrifice of growth in the short - term. that is an inevitable price to pay for price stability. but the sacrifice in growth is only in the short - term. in the medium - term, there is no trade - off between growth and inflation. philips curve another facet of this growth - inflation debate that has played out in the recent period has been the growth - inflation trade - off in the context of the philips curve. • the argument is that we can raise growth by tolerating higher inflation. this is misguided. • relationship between growth and inflation is non - linear. • there is a threshold level of inflation. • below the threshold, may be, there is a trade - off between growth and inflation. • above the threshold, there is no trade - off between growth and inflation, higher inflation actually leads to loss of growth. with wpi inflation at 7. 25 per cent and cpi inflation in double digits, we are way above the threshold. • what is the threshold level of inflation? that maybe around 5 per cent. inflation today is above the threshold. dr. patel ’ s dictum about maintaining growth with price stability is the quintessential objective of monetary policy. • that is something that we are deeply conscious of and that is something we are adhering to in the reserve bank even today. ii. communication challenges the second issue i want to talk about is communication challenges. there is a paper by dr. patel and i quote a sentence from the paper : “ apart from communicating its own slant on national and international trends, there are three special areas which need attention. the first is the glamorous but elusive area of what the central bank communicates and how it does so in relation to its specific responsibility for monetary and foreign exchange policy ; the second is communication on issues in regard to its regulatory functions ; and the last is communication with the government of the day, including parliament. ” oxymoron i am deeply struck by this statement by dr. patel. not so much by the content, not so much by the context, but by the fact that dr. patel chose to say it at all.

all these years. alaknanda, your presence here means a lot to all of us in the reserve bank. bis central bankers ’ speeches the book this book “ of economics, policy and development ” is a collection of largely unpublished papers by dr. patel. • they cover a wide canvas money, finance, trade, balance of payments, economic development and international political economy issues. • they cover a wide time span articles written when he was a young economist at the imf to articles and papers written after dr. patel evolved as one of leading public intellectuals of the country. • they span a vast intellectual spectrum papers with deep academic orientation articles with profound practical policy implications what is common across all of the articles / papers regardless of the topic is deep scholarship, sharp intellect and above all an abiding concern for public interest. ideas and issues resonate even today what has struck me as i browsed through the book is that several of the ideas and issues that dr. patel addressed resonate even in today ’ s context, both at home and around the world. i will comment on some of the ideas that he raised. i. monetary policy in one of the articles, dr. patel reviews the evolution of monetary policy in the post - war years compared to the pre - war years. he writes : “ the supreme test of monetary policy lies in its ability to control the supply of money in such a way that growth in prices is checked without retarding the growth in production. ” the essence of that sentence is that checking growth in prices without retarding production ; that is the quintessential growth versus inflation debate that is playing out even today. a relevant question in this context is the following : “ to what extent is the reserve bank acting consistent with dr. patel ’ s dictum of controlling prices without hurting production? ” by far the most strident criticism against the reserve bank has been that even after persistent and prolonged tightening of monetary policy – by raising interest rate 13 times – we have not been able to restrain inflation. on the other hand, we stifled growth. so the question is has the reserve bank failed in following the dictum that dr. patel prescribed? i don ’ t believe so. in fact i will argue that the reserve bank ’ s action is fully consistent with dr. patel ’ s dictum of trying to protect growth with price stability. let me explain. • inflation is inimical to growth. there cannot be much disagreement on that. bis