ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Inflation- Social, Not Monetary, Phenomenon

of it. Among the factors enumerated by the Governor of the Reserve Bank in his letter to commercial banks this week as being responsible for the Unseemly credit expansion this year, two are "higher accumulation of finished goods in key industries" and "an increase in the receivables of the corporate sector". Both are obviously symptoms of the situation of insufficient demand facing the industrial sector, which only an expansion of investment and employment can help to alleviate. Until this additional investment is forthcoming, it is naive of the Reserve Bank to expect that banks will be able to "recycle" the credit which is tied up in, for instance, the engineering, steel and coal industries. Of a step-up in investment there continues to be no sign. The state of public sector investment is very roughly indicated by the fact that the one item in the Reserve Bank's data on money supply which shows a lower increase this year than last year is net bank credit to government at Rs 466 crores in April-December 1976 compared to Rs 861 crores in the same months of 1975. And so long as the government fails to push up investment in the economy We will continue to have bizarre spectacles such as the Reserve Bank huffing and puffing to control money supply and bank credit without success, while in the very same week the union commerce minister announces a plan to ''revitalise the cotton textile industry", one of the linchpins of which is more liberal provision of bank credit to the industry! lished between the two. He has several incisive comments on the Impact of price inflation on the recent processes of the economy. In our system the cure of inflation, Krishnaswamy points out, has been generally equated with the curbing of central bank advances to the government sector. Since the need for such advances arises from pressures that get built into the government budget

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