Vol. 2 No. 3 (May-Jun) (2021): Indian Public Policy Review

Taxonomically speaking, the received theories of the macroeconomy may be said to comprise monetarism, structuralism, Marxism, the post-Keynesian view and the New Consensus Macroeconomics (NCM).  However, in the last few decades, the mainstream view has been converging on the NCM, representing a grafting of essentially Keynesian ideas on a framework of rational expectations. Associated with this consensus has been a steady de-emphasis on the role of monetary aggregates in the framing of monetary policy. This paper is devoted to an examination of the role of monetary aggregates in each of the macroeconomic theories listed above. In particular, it contests the prevailing mainstream policy viewpoint (heavily influenced by the NCM) that monetary aggregates have no explanatory power for inflation beyond that contained in the output gap.  On the contrary, the empirical fact that several monetary shocks originate on the supply side, coupled with the strong possibility of monetary shocks affecting output through relative price changes, make out a strong case for the inclusion of monetary aggregates at least as a Second Pillar of monetary policy  (in the manner currently done at the European Central Bank). A monetary policy calibrated without reference to monetary aggregates is like Hamlet without the Prince of Denmark.

This paper examines how the new flexible inflation targeting framework has worked in practice in India, five years after it was introduced. The policy decisions taken by the Reserve Bank of India are analysed on four fronts — the trajectory of inflation, the inflation forecasting record, the voting behaviour of the monetary policy committee, and the ability to keep the weighted average call money rate within the policy corridor. These four themes represent the formal nominal anchor, the intermediate target, the central bank response function and the operating target of monetary policy. Each is a building block of the flexible inflation targeting framework. The paper then offers some suggestions on the road ahead for monetary policy practice in India, both given the experience of the past five years as well as the Covid-19 shock to the Indian economy.

Understanding the evolution of policy over long horizons is an interesting exercise. While it is possible to look at a policy approach ex-ante, many of the decisions of the policy makers are undertaken in response to an emerging situation and several times, there could be initiatives that seemingly have internal contradictions. Additionally, institutions like the Reserve Bank of India would have approaches institutionalised that shape the policy making and thoughts of the leaders at the helm of affairs. Understanding this process through chronological insights and seeing patterns is an exercise that this paper attempts. The paper looks at the speeches delivered by the Governors (and one Deputy Governor) of the RBI to find a pattern and meaning into the series of policy initiatives that the institution is undertaking. In looking at the patterns, the paper tries to build a narrative of an overarching concern that the leaders might have during their tenure. The paper picks up the speeches delivered by leaders at the helm of RBI from 2004 till 2018 and examines the policy discourse to understand the elements of continuity and change.

This paper analyses India’s ongoing farmer protests movement through the lens of the Radically Networked Societies (RNS) framework. Building on prior RNS-based case studies, the paper contends that this movement is marked by a combination of allied and opposing RNS groups. These RNS groups are characterised by the existence of overlapping identities operating across a mix of existing and instantaneous networks coalescing around their respective common causes of opposing the three farm laws enacted by the Union government and opposing this opposition itself. The ensuing interactions result in amplifying and sustaining adjacent and opposite RNS groups. The paper concludes that the hitherto weak bonds underlying spontaneous networked movements will be supported by hardening ties based on political identities that also transcend international boundaries. This can result in sharper responses by states which may be tempered by international pressure or scrutiny in the short term. Alternatively, an increasing number of protest movements for extended periods could lead to a flattening of responses and waning levels of attention.

Randomised controlled trials (RCTs) have become a popular methodological choice for policy analysis in the developing world. This paper describes the various ethical and methodological considerations when choosing to adopt RCTs for policy decisions through a review of literature in multiple disciplines. Unlike previous critical analysis of RCTs, this paper contextualises its critique to India, a country that has been the site of well over a hundred RCTs. Through illustrations of recent Indian policy RCTs on corruption, livelihoods, Public Distribution System, conflict and others, the paper raises concern about violations of ethical requirements like equipoise, informed consent, data harms, human costs to research participants and research staff. The paper discusses methodological limitations of RCTs for Indian policy making including heterogeneity, researcher effects, generalisability, policy-relevant unobserved mechanisms and other socio-political considerations. The paper ends with a description of alternative approaches and a simple checklist for practitioners, specifically policy makers, to assess the feasibility of RCTs for informing decision making in their context.