Subbarao blames govt for slowdown

Subbaraos comments came on a day when an IMF report on the Indian banking sector said the RBI was not adequately independent of the government.

There has been dismay about the ferocity of depreciation; there has also been a growing tendency to attribute all of this to the tapering of its ultra easy monetary policy by the US Fed. Such a diagnosis,I believe,is misleading, he said while delivering the Nani Palkhivala Memorial lecture,his last public meeting as the Governor.

He said supply-side constraints and governance issues were clearly beyond the purview of the RBI.

If the RBIs repo rate was the only factor inhibiting growth,growth should have responded to our rate cuts of 125 bps between April 2012 and May 2013,CRR cut of 200 bps and open market operations OMOs of Rs 1.5 trillion last year, he said.

The root cause ,he said is that India has been running a current account deficit CAD well above the sustainable level for three years in a row,and possibly for a fourth year this year. Critics of our monetary tightening must also note that our degrees of freedom were curtailed by the loose fiscal stance of the government during 2009-12. Had the fiscal consolidation been faster,it is possible that monetary policy calibration could have been less tight, he said.

Defending his policy,he said,The RBI had run a tight monetary policy not because it does not care for growth but because it does care for growth. Inflation hurts,but hurts the poor much more than the better off.

However,Subbarao admitted that for an institution with such a powerful mandate,the mechanisms for accountability are both inadequate and unstructured.

Perhaps,we should institute an arrangement whereby the Governor goes before the Parliament Standing Committee on Finance twice a year to present a report on the RBIs policies and outcomes and answers questions from the Committee. In my view,this will not only secure the accountability structure but also protect the RBI from any potential assaults on its autonomy.

Subbarao was categorical that a central bank should aim first at price stability. The fundamental responsibility of central banks for price stability should not be compromised. Second,central banks should have a lead,but not exclusive,responsibility for financial stability. It is also important that the mandate of the RBI is written into the statute,so that it is protected from the political dynamics of changing governments,he said.

I hope FM would one day say,thank God,RBI exists

Mumbai: RBI Governor D Subbarao also touched on the media coverage on policy differences between the government and the central bank,especially on monetary loosening and bringing down interest rates.

Subbarao said in a lighter vein,Gerard Schroeder,the former German Chancellor,once said,I am often frustrated by the Bundesbank. But thank God,it exists. I do hope finance minister P Chidambaram will one day say,I am often frustrated by the RBI,so frustrated that I want to go for a walk,even if I have to walk alone. But thank God,the Reserve Bank exists.

Earlier this year the government unveiled a host of steps to bring fiscal discipline and boost growth,but the RBI did not respond to it by effecting a rate cut prompting the finance minister to say,We will walk alone,if need be. ENS

FM: Subbarao said what Ive said all along

Mumbai: Finance Minister P Chidambaram on Thursday reacted to RBI Governor D Subbaraos comments on the reasons for the current economic woes,saying that his views were no different from that of the Governor.

This is no different from what I said day before yesterday, he told reporters when asked to respond to Subbaraos criticism of government policies as responsible for the slowdown.

Speaking in Parliament on Tuesday,Chidambaram attributed the current woes to domestic factors allowing the fiscal deficit to be breached and the current account deficit to swell because of decisions taken during the tenure of his predecessor. PTI