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Journalism of Courage
The new RBI governor, D. Subbarao, faces many difficult challenges. In the short term, inflation looms large. With the rupee continuing to depreciate, it is difficult to bring inflation under control. The governor should move away from the traditional approach of raising interest rates. Using reserves and easing capital controls to strengthen the rupee could help in controlling prices without hurting growth. In the longer run, Subbarao8217;s biggest challenge is to support the financial sector and monetary policy reforms. India is integrating with the world economy at a fast pace. RBI must provide an environment and a regulatory framework that encourage and facilitate India8217;s globalisation.
The first challenge is to dismantle the licence permit raj in Indian finance. In the early 8217;90s India implemented reforms in trade and industry and got rid of the licence permit raj that characterised socialist India. Today such reforms need to be done in the financial sector. In recent months there has been a lively debate on these issues led by the Percy Mistry and Raghuram Rajan reports on the financial sector. The governor has the responsibility of taking the recommendations related to RBI forward. The setting up of a new regulatory architecture that caters to the needs of modern finance will require sacrificing turf and adopting policies that are good for the economy, rather than the narrow objectives of the institution.
