As long as the focus of monetary policy was on keeping exports competitive through manipulating the rupee-dollar rate, RBI could conduct monetary policy without the analytical arsenal normally used by modern central banks. However, as the Raghuram Rajan and Percy Mistry reports point out, today the contradictions between a policy that focuses on the exchange rate and a policy that focuses on reducing inflation has become so sharp that RBI needs to reform itself into a central bank that focuses on inflation. In this setting, the intellectual tools for understanding the inflation process have to be sharpened. Among other techniques, an improvement in the measurement of inflation and in understanding the inflationary process must be an important element of the reform undertaken. The CSO can contribute to this process by releasing improved inflation data and tracking monthly changes in prices.

The writer is senior fellow, National Institute of Public Finance and Policy

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