A reminder to the RBI: inflation targeting is about accountability,and thats important...
Written by The Indian Express
3 min read
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Reserve Bank of India Governor D. Subbarao,delivering the C.D. Deshmukh memorial lecture in Hyderabad on Thursday,told his audience that the RBI could not,and should not,focus all its energies on achieving for India a desired,or target rate of inflation. In emerging economies,Subbarao says,central banks need to balance between growth,price stability,and financial stability.
On the surface this may appear a purely anodyne what-we-should-all-work-towards statement. But it isnt,at all. It is,at its root,an attempt from a governor who should know better to add his voice to the traditional chorus from Mint Street one that has as its refrain an aversion to accountability.
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What does ducking accountability have to do with the apparently eminently sensible statement that a monetary policy authority should keep growth and financial stability in mind? Simply this: does Subbaraos argument run that an inflation-targeting bank will heedlessly destabilise the economy to serve some technocratic obsession with a particular inflation rate? Clearly,that would not be the case,and nobody expects it would come to that. No,what is being demanded here,with a spurious appeal to post-crisis changes in conventional wisdom actually determined,as in the case of the new UK coalition governments thoughtless moves on regulation,by petty politics is a continuation of an old system. That set-up,in which multiple goals for one institution lead to manifold conflicts of interest,and with that make it impossible to set standards by which it can be held responsible,has not served us well.
The central point is this: all these goals inflation,financial stability,growth are desirable for our government to pursue. But that doesnt mean every component of our administration handles them all at once. Just like employees in an organisation,the incentives and yardsticks for government institutions need to be carefully mapped out,to avoid conflicts or else,invariably,the institutions leaders will evade responsibility. Even if that works elsewhere and it doesnt it cant be allowed to happen here,where the transcripts of meetings,the reasoning behind decisions,are left so opaque,and where governors of the RBI are not hauled up before committees of Parliament to explain themselves. The RBIs independence is valuable. Its commitment to economy unquestioned. But this is a question of institutional design and service delivery,and its governor has got the answer wrong.
