The FM and RBI

The FM’s messgae to RBI on the eve of his meeting with the PSU banks to have a broad based approach to ensure growth of the economy and employment only smacks of the dominance of the Government over RBI without appreciating the Central Bank’s role in maintaining price stability, financial stability and monetary stability in the economy. No doubt growth is essential for any economy to sustain, but RBI alone cannot be expected to do the trick ignoring the over all environment of political instability, lack of governance and support in the form of strong and convincing economic and administrative policy reforms. The ills of the economy are not the creations of RBI have to be understood without any bias and the reasons for such a state of affairs have to be studied in depth. Passing on the buck will not solve the problems. It can at best help to survive an uncomfortable situation faced by the Govt for a temporary period. The high Current account deficit, the fiscal deficit, slow down of the economy because of shortage of savings and investments, failure of Government in taking appropriate administrative policies to ease the power situation, land acquisition, and clearance of huge number of projects awaiting approval, and some of the misguiding taxation policies. Large scale corruption and the difficulties encountered in doing business have affected very badly the atmosphere for investment and growth, where RBI has very limited say. RBI is the saviour of the economy to a great extent with its’ tight  and also flexible monetary policy is what is to be accepted and appreciated. Even then the present stability of the financial system and monetary system cannot be said to be as comfortable as they were a couple of years ago. This should be the worrying factor both for the Govt and RBI at this juncture.

Dr.T.V.Gopalakrishnan

(This comment in response to a news item"RBI must understand its mandate in a broad sense is published in Business Line dated 3/7/11).