This is the rationale behind the Reserve Bank’s policy of calibrating its medium term inflation goal to global inflation. 51. This is an appropriate context for me to respond to the argument for a new normal based on the PPP convergence argument.
Our view on this is that PPP convergence cannot be a policy goal, and accepting higher inflation to aid PPP catch up will be both futile and indefensible. As India’s per capita income rises, PPP convergence will happen automatically. We need to make sure that rise in incomes is accompanied by productivity gains so that the process of PPP catch up is non-inflationary. 52.