Prime Minister Manmohan Singh with D. Subbarao (left) and former RBI governor Bimal Jalan in New Delhi on Saturday. (PTI)
New Delhi, Aug. 17: Days before he steps down as governor of the Reserve Bank of India, a candid D. Subbarao today termed as “inaccurate and unfair” the contention that the central bank was obsessed with inflation, oblivious to growth concerns.
“To contend that the Reserve Bank is obsessed with inflation, oblivious to growth concerns, I think, is both inaccurate and unfair,” he said at a function at the Prime Minister’s residence to release the fourth volume of the RBI’s history.
Prime Minister Manmohan Singh, a former RBI governor, also waded into the controversy today over the hawkish monetary policy that the central bank has adopted over the past two years.
“I would venture to think that the time has come when we should revisit some of those areas — the possibilities and limitations of monetary policy in a globalised economy, in a fiscally constrained economy,” he said.
The Prime Minister expressed the hope that future governors, including Raghuram Rajan who takes over from Subbarao on September 5, would attempt to revisit some of these areas.
Last week, finance minister P. Chidambaram had suggested widening the mandate of the RBI to cover both inflation and growth — giving the central bank a dual mandate like the US Federal Reserve.
During his tenure, Subbarao has often resisted the growing clamour for a cut in interest rates to kick start a sputtering economy. Subbarao has often said that he was prepared to sacrifice growth in order to first focus on exchange rate stability and then inflation.
The governor, who will demit office on September 4, spoke on growth-inflation balance and said the first and possibly the most important debate was about balancing growth and inflation in the policy context.
“This is a balance that both governments and central banks struggle with. In my view, this debate has been clouded by oversimplifications. One such oversimplification is to say that governments are for growth and central banks are for price stability. Another oversimplification is to assert that there is a tension between growth and inflation, and that one necessarily has to play the trade-off between growth and inflation in policy making,” Subbarao said.
Subbarao said the RBI’s monetary policy aimed at three objectives — price stability, growth and financial stability. “The Reserve Bank is committed to inflation control, not because it does not care for growth, but because it does care for growth.
“There is any amount of evidence to show that an environment of low and stable inflation is a necessary precondition for sustainable growth,” Subbarao said.