This is not the occasion to enter a defence of our position. But in the context of this conference, the criticism throws up an important issue on the growth-inflation trade-off. Evidence from empirical research suggests that the relationship between growth and inflation is non-linear. At low inflation and stable inflation expectations, there is a trade-off between growth and inflation.
But above a certain threshold level of inflation, the trade-off disappears, this relationship reverses, and high inflation actually starts taking a toll on growth. Estimates by the Reserve Bank using different methodologies put the threshold level of inflation in the range of 4%–6%. With WPI inflation ruling above 9 per cent till recently, we were way past this threshold.