The differences between Reserve Bank of India (RBI) governor D Subbarao and the government came out in the open on Thursday with outgoing central bank chief mincing no words in asking the government to define the central bank’s mandate in law to insulate it from political intereference.
He also put the blame squarely on the government for the current state of the economy caught in a pincer attack of a sharply falling rupee, dipping investment, weak growth, high borrowing costs and rising prices.
“It is also important that the mandate of the Reserve Bank is written into the statute, so that it is protected from the political dynamics of changing governments,” Subbarao said the 10th Nani A Palkhivala Memorial Lecture in Mumbai.
He also invoked the importance of “dharma” for better functioning of public institutions.
“The RBI tops the list of India’s public institutions that are guided by Dharma and Dharma alone,” he said.
Subbarao’s comments came during the course of his last public lecture “Five Years of Leading the Reserve Bank: Looking Ahead and Looking Back.”
He made it more than obvious about his disagreement with government’s recent criticism of RBI’s insistence to stick to the conventional focus on taming inflation.
The RBI’s hawkish stance had sometimes evoked unusually strong comments from the government mirroring growing differences between India’s top financial administrators.
“I do hope Finance Minister (P) Chidambaram will one day say, “I am often frustrated by the Reserve Bank, so frustrated that I want to go for a walk, even if I have to walk alone. But thank God, the Reserve Bank exists,” Subbarao said with a tinge of sarcasm.
Earlier this month, the finance minister had told Parliament that the RBI must look beyond its orthodox focus and should also target employment and growth as its key objectives.
“The mandate of price stability must be seen as part of the larger mandate and the larger mandate is growth and employment,” he said in the Rajya Sabha while replying to a debate on state of economy.
The central bank under governor D Subbarao, whose term ends on September 4, has withstood mounting pressure from the government and industry bodies to cut interest rates.