Do you think that the recently amended FDI regulation by the Government of India is problematic under the scope of World Trade Organization? Analyse (200 Words)
Refer - Financial Express
Enrich the answer from other sources, if the question demands.
IAS Parliament 5 years
KEY POINTS
· The spread of Covid-19 and the ongoing lockdown have affected economic activity significantly, with many economists expecting the Indian economy to contract in the current fiscal year.
· Reserve Bank of India (RBI), which has reduced interest rates and flooded the system with liquidity. The banking system currently has excess liquidity worth about Rs 7 trillion.
· Even when the monetary policy committee (MPC) in recent times decided to keep the policy rate unchanged, the RBI increased liquidity in the system to influence medium-term rates.
· With so much liquidity in the system, market rates are now essentially being controlled by the RBI and not the rate-setting committee. Undermining the MPC can increase financial stability risks, especially in uncertain times.
· There are strong reasons why the sanctity of the monetary policy framework should be maintained. For instance, in the given economic environment, it is likely that policymakers would need to take some extraordinary measures.
· In such a situation, it would be comparatively easy to convince financial markets that such measures will be rolled back in time if they are done transparently through proper institutional mechanisms. If the markets start believing that institutional structures and checks are being undermined, financial stability risks could go up substantially.
· The adoption of the inflation-targeting framework has served India well, and is seen as one of the biggest reforms in recent years.
· Although there is a broad consensus among economists that the demand shock induced by Covid-19 will keep inflation low in the foreseeable future, disruption in supply-chains and global trade could push up prices in the interim.
· While higher inflation could be transient in nature, it could affect inflationary expectations if the credibility of the monetary policy framework is dented and make macroeconomic management more difficult.
