Top policymakers must ensure predictable actions

New Delhi: The government should ensure that the policy actions are predictable and provide guidance in order to check economic policy uncertainty, which greatly influences domestic as well as foreign investments in the country, according to the Economic Survey for 2018-19.

The document, which was tabled by Finance Minister Nirmala Sitharaman in the Rajya Sabha on Thursday, stated that policymakers at the highest level must monitor the economic policy uncertainty index on a quarterly basis.

"First, top-level policy makers must ensure that their policy actions are predictable, provide forward guidance on the stance of policy, maintain broad consistency in actual policy with the forward guidance, and reduce ambiguity, arbitrariness in policy implementation," the survey said.

To ensure predictability, the horizon over which policies will not be changed must be mandatorily specified so that investor can be provided the assurance about future policy certainty, it noted.

While this will generate some constraints in policymaking, such voluntary tying of policymakers' hands has been undertaken several times - like in the case of the Reserve Bank of India formulating the monetary policy, it added.

"The government must encourage construction of economic policy uncertainty sub-indices to capture uncertainty stemming from fiscal policy, tax policy, monetary policy, trade policy, and banking policy," it noted.