could be supplemented with a re - examination of global safety nets. the gains from coordination economists generally converged on the view that the gains to policy coordination were small provided each country optimized its own policies keeping in mind the policies of others. the “ nash equilibrium ” was not that far from the global optimum, hence the “ own house in order ” doctrine was dominant in the international monetary field. 16 national macroeconomic stability was seen as sufficient for international macroeconomic stability. the domestic and international aspects were essentially regarded as two sides of the same coin. two factors have led to a rethinking of the doctrine. first, domestic constraints including political imperatives of bringing unemployment down and the economic constraint of the zero lower bound may lead monetary policy to be set at levels different from the unconstrained domestic optimal. dysfunctional domestic politics could also contribute in moving monetary policy further from the unconstrained optimal. in other words, the central bank, responding to a variety of political pressures and weaknesses, may stray away from even the constrained optimal – towards third best policies rather than second best policies. second, cross - border capital flows can lead to a more dramatic transmission of policies, driven by agency ( and other ) considerations that do not necessarily relate to economic conditions in the recipient countries. one argument along these lines is that if some large country adopts unconventional and highly accommodative sub optimal policies, other countries may follow suit to avoid exchange rate appreciation in a world with weak demand. 17 as a result, the policy equilibrium may establish at rates that are too low compared to that warranted by the global optimal. another argument is that when the sending country is at the zero lower bound, and the receiving country responds to capital inflows with aggressive reserve accumulation, both may be better off with more moderate policies. 18 indeed, it may well be that coordination may allow policy makers political room to move away from sub optimal policies. if political paralysis and consequent fiscal tightening forces a source country to a sub - optimal reliance on monetary stimulus, policy coordination that allows for expanded demand elsewhere could allow the source country to cut back on its dependence on monetary stimulus. 19 domestic optimal is close to the global optimal despite these arguments, official statements by multilateral institutions such as the imf continue to endorse unconventional monetary policies while downplaying the adverse spillover effects to other countries. indeed, in an excellent analysis of the obstacles to international policy coordination, the imf

like a dog chasing its tail – it can never catch it. another could be that since rice and wheat are the primary food commodities procured at the msp, production is distorted towards rice and wheat, leading to a suboptimal production mix by farmers – too much rice and wheat, and too little of other needed commodities. both these explanations would suggest the need for more moderation as the government sets the msps in coming months. it is useful though, to look at the details of the cost increases. prices of agricultural inputs, including wages, have recorded a sharp increase during 2008 – 09 through 2012 – 13 in comparison with the preceding five years ( 2004 – 05 to 2007 – 08 ) as shown below ( table 1 ). perhaps the most significant increase has been in rural wages. for example, wage increases have accounted for the largest share of increase in paddy input costs ( chart 8 ). nominal rural wages have grown at a sharp pace during the last five years. because so many indian workers are at subsistence wages, higher food prices do drive rural wages higher, and there is some evidence for this before 2007. from 2007 onwards, however, econometric tests suggest causality has flowed from wages to prices, underscoring the role of rural wages as a major determinant in food price increases. so why has rural wage growth been so strong? b. mahatma gandhi national rural employment guarantee act ( mgnrega ) a sharp pickup in rural wages was seen after the rural employment guarantee program ( assuring 100 days of employment to every household whose adult members volunteer to do unskilled manual work ) was enacted. mgnrega may have contributed to the bargaining power of rural workers, but careful econometric studies suggest that it accounts for only a small fraction of the rural wage increase, and indeed, any effect is waning ( chart 9 ). that said, the indexation of mgnrega wages suggests its effects in pushing rural wage inflation will not disappear entirely. c. rural liquidity and credit there has been an increase in liquidity flowing to the agricultural sector, both from land sales, as well as from a rise in agricultural credit ( chart 10 ). more loans to agriculture have fostered substantial private investment in agriculture, but may also have pushed up rural wages. d. labour shifting to construction the labour force has been moving from agriculture to non - agriculture sectors, particularly construction. this would have the effect of pulling up rural labourers ’ wages ( due