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RBI Governor hints at fiscal headaches from stimulus measures

The Reserve Bank of India will focus on managing inflationary expectations and the medium-term fallouts of the recent policies as India recovers from the impact of the global economic crisis, the Central Bank’s governor said on Friday.

business Updated: May 08, 2009 23:17 IST
HT Correspondent

The Reserve Bank of India will focus on managing inflationary expectations and the medium-term fallouts of the recent policies as India recovers from the impact of the global economic crisis, the Central Bank’s governor said on Friday.

He was hinting at an impending surge in the fiscal deficit as stimulus measures to revive the economy reduce room for tax revenues while boosting government expenses. “When the crisis is behind us we need to think about managing inflationary expectations about the medium term consequences of policy actions in the economy and on the macro economic imbalances,” Duvvuri Subbarao said at a function to release a book by his predecessor at the job, Yaga Venugopal Reddy.

Dr Reddy’s book India and the Global Financial Crisis: Managing Money and Finance, published by Orient Blackswan deals with the causes and potential consequences of the ongoing global financial crisis. Reddy emerged as a creditable central bank head as he cracked down on speculative spending and took a hawkish line against inflation, which proved eventually helpful for India’s economy.

The book compiled from 23 select speeches of Dr Reddy when he was governor gives an insight to his policy-making acumen.
“If America had a central bank chief like Y V Reddy, the US economy could not have been in such a mess,” stated Nobel laureate Joseph E Stiglitz said last year.

Through his book, Dr Reddy provides a ringside view of the dynamics of policy making, especially the interaction between central bank and public policy.