Mumbai (Agencies): Calling for stern steps to tackle inflation by the RBI, former Reserve Bank Deputy Governor Savak Soharab Tarapore has said the "soft and calibrated monetary policy measures" taken by the central bank to check price rise have failed so far.

"There is no alternative to unequivocal and unswerving policy action to tackle inflation that has now become a major structural problem. The efforts of the RBI in controlling inflation have failed so far," he told a function organised by research agency Dun & Bradstreet here over the weekend.
“If the timely action is delayed and inflation rises to unacceptably high levels, the monetary policy required is very harsh, as a cold turkey approach becomes inevitable," he added.

Tarapore called for "a proactive, forward-looking monetary policy to batten down inflation and not the baby-step measures as it has been recently doing," as he warned that the government and RBI preoccupation with high growth at the cost of inflation will be counterproductive and disastrous.

"Even after a 4 percentage point slump last week, the number is unbearably high and gnaws into the vitals of large tracts of the population," he added.

Arguing that "there is no soft monetary policy" when it comes to fighting inflation, he blasted the belief gaining currency among policymakers that it is possible to curb price rise by resorting to small, calibrated steps, thereby not hurting growth. "You can't slay the dragon of inflation without hurting growth," he said, quoting economist C A Yandle.

Stating that the most important role of any central bank is to keep inflation low, he said, since the Reserve Bank cannot keep prices low by producing more goods, it must ensure
that there isn't too much money in the system chasing too few goods.

Pointing out that consumer price index-based inflation is the globally accepted measure of price rise, he said, "The WPI-based inflation, which we follow even now, is a poor indicator of inflation at the grassroots level," and lamented that we are yet to have a consumer price  index (CPI), which can be used for policy purposes.

Tarapore also warned that an upward spiral in inflation is the major threat to country’s high growth and said, "Given the large number of the poor in our country, a 6-7 per cent sustained growth with a 3-4 per cent inflation would be preferable to 9 per cent growth with 9-10 per cent inflation."