Prime Minister Manmohan Singh, D Subbarao spar over RBI's policies


    Tensions between the government and the RBI governor came out in the open as PM called for “fresh thinking” on macroeconomic policy.

    Tensions between the government and the RBI governor came out in the open as PM called for “fresh thinking” on macroeconomic policy.
    NEW DELHI: Tensions between the government and outgoing RBI governor D Subbarao came out in the open on Saturday as Prime Minister Manmohan Singh called for "fresh thinking" on macroeconomic policy and suggested the central bank narrow its focus.

    The PM on Saturday seemed to throw his weight behind finance minister P Chidambaram who has been insisting that RBI must not interpret its mandate solely in terms of inflation control and needs to be more attentive to the government's growth priorities.

    "I would venture to think the time has come when we should revisit the possibilities and limitations of monetary policy in a globalized economy, in a fiscally constrained economy," Singh said at a function to release a history of the RBI, where the governor was in audience.

    Interestingly, Subbarao used the occasion to stoutly rebut criticism of being insensitive to growth, saying it is "inaccurate and unfair" to contend RBI was "obsessed with inflation, oblivious to growth concerns".


    Subbarao argued that the RBI was focused on taming inflation precisely because it was bothered about growth. "There is any amount of evidence to show an environment of low and stable inflation is a necessary precondition for sustainable growth," he said.

    While Subbarao called the growth versus inflation debate an "over simplification", Singh drew on his own experience as RBI governor to stress monetary policy needed to evolve, saying a redefinition of policy goals he initiated in the 80s had proved to be relevant.

    Elaborating his thoughts, the PM said, "... macro-economic policy-making, targets and instruments, I think, is another area, where I feel fresh thinking is called for, and I sincerely hope governors of the future, particularly Dr Raghuram Rajan, will attempt to revisit some of these difficult areas."

    As slipping growth accentuated the government's political problems over the last year, the finance ministry and the RBI have found themselves increasingly at odds as the ruling coalition looked to the central bank to reduce interest rates to provide a fillip to investment.

    Subbarao, who demits office on September 4, said the view that governments are for growth and central banks are for price stability is a simplification and while he has said so earlier as well, it was significant that he chose to make the point again in the presence of the PM at Saturday's function.
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    19 Comments on this Story

    amar2578 days ago
    Our RBI governor, a very well meaning person was solely obsessed with inflation control...... not much success ....results are known..... however his single minded focus had an adverse effect on growth , thereby doing great harm to our future generations.... we urgently need growth and jobs ....he should have adopted a little more balanced approach .... surely his successor will undo the grt harm
    K.Mundan2590 days ago
    Every Indian is aware of the fact that RBI has miserably failed in discharging one of its main functions: maintaining the external and internal values of rupee: a dollar at the time of our independence was equal to one rupee: before devaluation on 6th June, 1966 the rate was Rs.4.75. It may not be long before that a dollar equals Rs.100. State Bank of India (SBI), formerly known as Imperial Bank of India (re-christened in 1955), was discharging the function also as central bank of the country, until 1935. It is suggested certain central banking functions be decentralized and some of them be re-transferred to the SBI, because during its regime as central bank, rupee was strong: all other controlling functions are only secondary.
    Saibabu Prathipati2590 days ago
    Inflation will be the root cause for all the ills the country faces and this happens when we have less commodities & more money supply to chase. Hence RBI comes into play to tame inflation by restricting money supply in the system by controlling REPO,CRR & SLR. This is required as inflation eats into every budget except the politicians who are flushed with ill gotten money. The Crux of the problem lies in the government to spend more money on subsidies rather on developmental schemes and this is leading to deficit budget which in turn is leading us to borrow money externally as well as internally. The country is perilously on debt trap and until & unless we do belt tightening we are in for a very big problem. The early MANMOHAN SINGH REALISES THE BETTER IT IS. Just blaming RBI for the sins committed by our political leaders is just not correct. LOw interest regime will compound the present problem as all the public sector banks are now neck deep with NPAs.
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