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Comments on: “Monetary policy approaches in India” by Kaushik Bhattacharya

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Comments on: 'Monetary policy approaches in India' by Kaushik Bhattacharya - BIS Papers No 31, December 2006. BIS Papers No 31 103 Comments on: “Monetary policy approaches in India” by Kaushik Bhattacharya Dominique Dwor-Frécaut This interesting and well written paper duly gives credit to the Reserve Bank of India for successfully shepherding the Indian economy through major financial and economic liberalisation while avoiding damaging financial volatility, and for presiding over disinflation and growth acceleration since the mid-1990s. However, the Indian economy is becoming more globalised and its financial markets are deepening. As India is considering further liberalisation of its capital account, it might find it beneficial to move the mechanics of its monetary policy implementation closer to global practices. Irrespective of its formal framework, implementation of monetary policy would, in our view, be greatly facilitated by the development of an effective communication strategy, that would, in effect, make the private sector a partner in the policymaking process.1 We believe this would entail a better statistical basis, more structured and predictable policymaking, clearer policy objectives, and more market-friendly reporting. Data As the paper points out, India does not have a comprehensive measure of inflation, it publishes very little available data on formal labour market conditions and there are no reliable indicators of wages and employment in the informal sector. Other data not currently available that would support policymaking, and stabilise market expectations, include: quarterly data on GDP by demand component; some index of real estate and land prices; more detailed data on the sectoral distribution of domestic credit; and monthly data on consolidated state-level fiscal performance. In addition, India’s balance of payments data do not follow the IMF Balance of Payments Manual 5 standard, and there are issues with the coverage of the

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