Subbarao: an RBI governor who can hold his own
When RBI Governor Duvvuri Subbarao had his tenure extended last year, a TV channel reported that 90 percent of bankers, economists and bond dealers in a poll felt the extension was good for the economy.
In June 2012, less than a year later, people were criticising him for defying widespread calls to cut interest rates, as stubborn inflation continued to bother him more than slowing growth .
Subbarao’s latest decision on Tuesday to hold the central bank’s key policy rate steady may increase the number of his detractors.
The RBI governor has always maintained that his focus is on fighting “sticky” inflation, which hurts the poor, and “some sacrifice to growth is an inevitable price“.
While pro-growth lobbies and Finance Minister P. Chidambaram might not agree entirely with the governor’s view, Subbarao has shown that it is tough to convince him to cut rates for vague fiscal plans.
The government offers no details on how the fiscal deficit will be tackled. Foreign direct investment in retail has been cleared, but it will take time for money to trickle in, and recent fuel reforms could have an upward impact on already high inflation. Subbarao has said that the reforms are good, but more needs to be done.
And the government should know by now that special press conferences and dropping hints will not influence the governor. Subbarao has proved he has the mettle to go against the wishes of Chidambaram and his predecessor Pranab Mukherjee.
He also has the right credentials and qualification — the former lead economist at the World Bank won praise for steering the country ably through the global financial crisis. Bloomberg Businessweek, which included Subbarao in its list of “India’s 50 Most Powerful People 2009”, described him as “a shrewd manipulator of the macroeconomic forces”.
If the government executes its fiscal consolidation plan properly, the RBI would take notice. We should also remember that it’s important to strike a balance between growth and inflation, and Subbarao is the best judge for that.
The RBI is not statutorily independent, but it has enjoyed a high degree of autonomy even before Subbarao’s tenure. Ideally, it should stay that way.
The government should do its job, and let Subbarao do his.