“The single-minded focus on inflation targets is not necessarily desirable or even achievable in a country like India” – Jayati Ghosh

The debate over the state and future of the Indian economy has been rife over the last couple of years but increasingly there is a sense that the time to determine the course of its future is now or never. The current government was arguably elected on the mandate of economic reforms and development but the two most decisive steps have been taken by the Reserve Bank of India, led by Governor Raghuram Rajan. Earlier this year a new monetary policy framework that for the first time sets the agenda of the central bank as inflation targeting (CPI 4% with a band of +/-2% from financial year ending in March 2017), came into place and in September this year a surprise rate cut of 50 bps was announced, that added considerably to the 75 bps cut made gradually over the course of the 2015. In this context, Pragya Tiwari spoke to Jayati Ghosh about the potential of this rate cut and about the role of monetary policy in the current state of the Indian economy. In the first part of this two-part interview they discuss inflation targeting and wage-led demand.