The amount India is putting into capital expenditure – mainly large-scale infrastructure – has been falling steadily, even as the government devotes more money to welfare projects.

While the welfare might be necessary, Sabyasachi Kar, who holds the RBI Chair Professorship at the National Institute of Public Finance and Policy, insists that India will have to find a way to spend on infrastructure again if it doesn’t want to be stuck in a low-growth trap. But with tax revenues falling and private investment declining, where will the money come from?

A recent blogpost by Kar envisions a new compact between the Reserve Bank of India and the Centre, in a way that keeps inflation in check while also providing more money for capital expenditure. His proposal, an “Augmented Flexible Inflation Targeting Framework” attempts to balance political and policy tensions while offering a blueprint to put India back on a high-growth path, albeit with a very unusual arrangement.

The post has prompted much discussion – see pieces by Andy Mukherjee and V Anantha Nageswaran – on how India should rethink its approach to inflation and growth, which we dig into below.

Scroll.in spoke to Kar about the need for economists to consider political implications, why he believes it’s more important to think...

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