Why are we going in the opposite direction?

"The Bank for International Settlements (BIS) has always played the role of Cassandra, the daughter of the Trojan king in Greek mythology, whose warnings about the fall of Troy lamentably went unheeded," wrote M Chakravarty. BIS is warning against a "dangerous build-up of global debt and runaway asset rises" due to exceptionally low interest rates across the world. Why are central banks stubbornly keeping interest rates so low? Because there is no inflation. As Claudio Borio, head of BIS's monetary and economic committee put so admirably,"This puts a premium on understanding the 'missing inflation' because inflation is the lodestar for central banks. It feels like Waiting for Godot." Prof N Roubini gives reasons for "The mystery of the missing inflation". Central banks of rich nations have an inflation target of 2%, which was first adopted by New Zealand in 1990, but since the crisis of 2008 inflation has stayed low despite interest rates dropping to zero, and even to negative in 23 countries, including the 19 countries of the Eurozone. Why is inflation stuck? Because "developed economies have been experiencing positive supply shocks", suggested Prof Roubini. Supply of cheap goods from China and other emerging markets, the flattening of the Phillips curve as workers lose their bargaining power, low oil and commodity prices, and technological innovations reducing cost of goods and services. The BIS argues that central banks should accept 0% inflation and start to normalize their monetary policies because "continuing much longer with unconventional monetary policies also carries the risk of undesirable asset price inflation, excessive credit growth, and bubbles". The Indian government has set an inflation target of 4%, plus/minus 2%, which means that the rupee buys less than other currencies every year. That is because the government perpetually runs a budget deficit, spending more than revenue. The stock market in India has been soaring because of money from abroad but now foreign funds seem to be selling out. If foreign money leaves the rupee will fall, which will raise the price of imports, especially oil. As the international cost of crude has fallen the government has raise taxes on fuel, so that now we are paying taxes of over Rs 40 per liter of petrol. Economic growth has fallen steeply. The only way to stimulate growth is to increase expenditure but the government has already spent 92.4% of its fiscal deficit target. If it carries on at this rate the deficit will jump to 4.9%. How about reducing taxes on fuel to stimulate private consumption and bring down inflation. That will drastically reduce revenue. So, while rich countries are growing with low inflation, our growth is stalling with a prospect of high inflation. That takes some expertise.