Miffed Chidambaram widens rift with RBI
Finance Minister P. Chidambaram usually does not talk to the throng of news-hungry reporters and cameramen gathered outside the gates of the red sandstone colonial building which houses the finance ministry. A ‘no comment’ or ‘I don’t have anything to say’ suffices on an ordinary day. Tuesday, however, was not an ordinary day.
Some two hours after the Reserve Bank of India announced it would leave the repo rate unchanged, and said that battling inflation was a more important priority than backing growth, the assertive finance minister arrived in the ministry. He got out of his car and walked up to the voice recorders, microphones and camera-toting journalists waiting in the driveway.
He signalled them to quieten down, all the while having a look of contemplation on his face, as if weighing the words he was about to say very carefully. What happened next gave the clearest indication yet of a widening policy rift between the government and the Reserve Bank of India.
“Growth is as much a challenge as inflation. If government has to walk alone to face the challenge of growth, then we will walk alone.” Although Chidambaram said it in measured tones, he definitely did not mince any words.
“I haven’t read last few paragraphs of the (RBI) statement but if it holds out hope for the future I look forward to that future,” he added, without attempting to hide a trace of sarcasm in his tone. Needless to say, his miffed reaction got a substantial amount of airtime and print space.
Ever since the Manmohan Singh government initiated a slew of reform measures to get the battered economy out of slowing growth and a ballooning fiscal deficit, policy makers, especially Chidambaram, have been very vocal in insisting that the central bank cut rates in order to facilitate investments, in spite of September inflation at 7.8 percent, a 10-month high.
“The response of the RBI on October 30 will be far supportive of growth,” Chidambaram had said last month at an event, a sentiment he reiterated on Monday, just a day before the RBI’s mid-quarter policy review, during a hastily called press conference in the Finance Ministry.
During the conference, he gave enough indications aimed at the strong-willed RBI governor Duvvuri Subbarao that he should cut rates for the first time since April.
“I am making this statement, so that everybody in India … acknowledges that the government is determined to bring about fiscal consolidation. I sincerely hope that everybody will read the statement and will take note of that,” he said, clearly hoping this constant goading would be effective.
Clearly, it was not.
“He (Chidambaram) is not happy,” an official in the ministry who works closely with the finance minister said, indicating that North Block and the RBI are at loggerheads. He said that there was a need to cut rates since the government had done what it could in terms of sending the right signals for a growth agenda.
“There are inflationary compulsions but growth is also needed. If you don’t cut rates then investments will suffer.”
While the RBI, headquartered in the financial capital of Mumbai, is not statutorily independent, it has tended to enjoy a high degree of autonomy, and Subbarao has resisted pressure in the past from New Delhi to ease policy. But this is probably the first time the government has made its displeasure so vocal.
Whatever happens from now on, whether New Delhi needs to do more to convince its central bank, or whether Subbarao cuts rates during his next review meeting, it will be interesting to watch how the relations between two major policy making centres, which seem pretty cold at present, will pan out from here.
Chidambaram, meanwhile, was not quite done for today. After clearly saying a lot, he quipped, “Sometimes it is best to speak, sometimes it is best to remain silent. This is the time for silence.”