Take RBI Into Confidence and build the economy strong. 

"I determine the monetary policy. I say what it is. The government can fire me, but the government doesn't set the monetary policy. So, in that sense, am I independent! Well, I am happy to talk to the government. I am happy to listen to the government but ultimately the interest rate that is set is set by me,"  said Dr Raghuram Rajan, Governor,  Reserve Bank of india at St. Gallen Symposium in Switzerland. What made him to come out with  such a statement is perhaps only  known to  him  although there are repeated outbursts in the media that BJP Government if comes to power  may like to change the Governor may have a possible bearing. This statement from Dr Rajan is very  bold and  well timed as there are some loose talks almost every day about  his removal by the new Government  as and when formed. It appears the new Government intentionally or unintentionally  has a  message to the Governor to act wisely reading its mind. How ever, the  response expressed by the Governor is   a clear message to the Government that the Reserve Bank as the central bank of the country has a  role to play and it cannot and  should not be dictated by the Government to satisfy its political agenda ignoring the autonomy the Reserve Bank is entitled to have in achieving its twin objectives of economic growth and Price stability which will ensure maintaining the external value of the rupee and  the financial stability vitally needed to attract investment both  from domestic and external markets.      

The relationship between the Central Government and the RBI has been strained for quite sometime and it all started with the ever persisting inflation caused due to wrong economic policies pursued by the Government for the past few years without worrying the adverse implications that they can inflict on the economy.  Added to this, lack of Governance  resulted in series of scams, paralysis in decision making on very  important areas of policies, lack of confidence in the economy affecting the investments very badly needed for infrastructure development and growth etc. The fundamentals of the economy got weakened fast and the Fiscal   Deficit Current Account Deficit deteriorated. Though the Reserve Bank had warned the Government several times directly and indirectly to step up measures to boost growth through fiscal and administrative measures, everything had fallen on deaf ears although some measures introduced as late as 2012 and 2013, started  yielding some  results. RBI on its part was more concerned to contain the ever persisting double digit inflation through its interest rate policy which has only a limited influence to fuel growth. RBI as a professional institution cannot and should not tune its policies to popular and market demands and through out its history it has played an independent but an active and supportive role to the Government ensuring growth of the economy and price stability.RBI was never blamed  and had never failed the Government in its pursuit of economic growth, is fact widely acknowledged  but of late , there has been a tendency to pass on the buck to RBI for the miserable failure of the Government to run the economy efficiently, effectively and enthusiastically. 

 The need for a coordinated approach between the Government and RBI has been  all the more  very vital now when there is a change of Government and this is the crucial period to sink   the differences if any in their opinions in policy matters. This is the time to find ways and means to set right the policy lapses and bring back the economy on the trajectory of growth.Confidence building is the need of the hour and the Government and RBI have a major role to play here. The fiscal policies of the Government and the monetary policies of the RBI which together form the economic policies to be pursued are being watched nationally and internationally and there is absolutely no room for both  to display to the world that they are on different directions and they have different objectives to be achieved. High expectations are there from the new Government and every move is very  closely watched, interpreted and pursued by investors all over the world. The Reserve Bank has a recognition world over for its strenuous efforts in keeping the  country's financial system in general and the banking system in particular stable sound and healthy although there are some strains of late  due to staggering non performing loans in banks on account of weak economy and interference of the Government in RBI's functioning in various ways. Despite the fundamentals of the economy not being strong, if at all the rupee has gained strength during the last few months, it is largely due to the professionalism shown by the Reserve  Bank under the leadership of Dr Rajan  who entered RBI when everything in the economy was wrong is a ground reality exhibiting RBI's concern and capability to set things right. Hope the new Government will not err and show the wisdom to  understand the economic and financial issues of the nation  in their right perspective  and take RBI  and  Dr Rajan  into full confidence in building the economy strong and make it enviable for others to watch and wonder.      

Dr.T.V.Gopalakrishnan,