Therefore, in an economy with precedents such as confiscation of deposits (1989, 2001), hyperinflation (1989, 1990), megadevaluations (1989, 1990, 1991, 2002), and a default on the public debt (2001), the monetary system cannot set itself an exclusive goal, ignoring the economy’s idiosyncrasy and vulnerabilities. To achieve long-term monetary and financial stability, this historical evolution needs to be taken into account.
Furthermore, the RBI has compounded the growth slowdown by urging banks to clean up their balance sheets. The RBI, of course, stands by its policies. Nevertheless, this debate is very important because it could shape policy directions in India over the medium term. Now what does the evidence say?