New Delhi: Despite the buzz to the contrary, Reserve Bank of India governor Duvvuri Subbarao, whose three-year term ends in early September, stands a fair chance of getting an extension. “He (Subbarao) has done a good job as governor. He should get an extension,” a top source close to the Prime Minister’s Office told FE. On Tuesday, finance minister Pranab Mukherjee expressed similar sentiments in Washington, although he parried a pointed query on whether the governor's term would be extended, saying it was too early to take a call. Clearly, there is a common view among key decision-makers that despite being in an exceptionally volatile period, the central bank under Subbarao has acquitted itself well on its key function as the monetary authority. Of late, the governor has also slightly softened his stance on “the centrality”of RBI when it comes to matters of financial stability, a view which aligns with that of the finance ministry. The issue of who should be the final arbiter of financial stability has anyway been resolved with the finance minister becoming the head of the Financial Stability and Development Council (FSDC) and the governor heading a more proactive subcommittee under it. “Even as RBI has implicitly been the systemic regulator in ndia, financial stability cannot be its exclusive responsibility,” Subbarao was recently quoted as saying. The government and RBI also seem to concur on a gradual removal of the role of debt management from the latter. This is in keeping with the view of many expert panels that RBI’s function of issuance of domestic debt could circumscribe its freedom in managing the monetary situation. A full-fledged debt management office is being set up with the finance ministry, although both sides have agreed to make it a spontaneous “process” rather than a sudden “event”. Subbarao’s three immediate predecessors — YV Reddy, Bimal Jalan and C Rangarajan—had spent five years each at the helm of the central bank. While Reddy was given a fixed five-year term, Rangarajan and Jalan were initially appointed for three years and their terms were extended subsequently. Reports said if Subbarao’s term is not extended, those who could be considered for the governor’s post include economic affairs secretary R Gopalan, advisor to the Prime Minister Raghuram Rajan and chief economic advisor in the finance ministry Kaushik Basu. Basu, who is now on a sabbatical from Cornell University, will reach the end of his contract by April next year, and is believed to be keen to return to his university job. Subbarao, who belongs to the Indian Administrative Service (Andhra Pradesh cadre), assumed the governor’s office on September 6, 2008, cutting short his stint as finance secretary. It was indeed a difficult time to take the mantle, with continuing uncertainties from the global financial meltdown. The mild-mannered bureaucrat, whose career was marked by a 10-year stint at the World Bank, could steer through the crisis with finesse. Under him, RBI has delicately calibrated the rate hikes — a cumulative increase of 250 basis points to 7.5% in repo rate since March 2010. At one point, the central bank appeared to run into a serious conflict with the government’s intention, although there were somewhat lame suggestions a year ago that his anti-inflationary stance was more hawkish than that of the finance ministry. With inflation remaining persistently high, it is patently clear now that both the government and RBI are unanimous in their view that the latter’s monetary policy stance ought to remain firmly anti-inflationary, even at the cost of a temporary slowing of growth. When Subbarao assumed office, the headline inflation (year-on-year) rate was 0.5% (August 2008), as it inched up from the negative figures recorded in June (-0.4%) and July (-0.5%) that year, thanks to the global economic crisis and the commodity price crash. Just a few months earlier, inflation was in double digits which Subbarao had to worry about as finance secretary. His RBI stint has also been marked by a return of headline inflation to double-digit numbers and a period of persistently high inflation. Of course, inflation was driven by global factors beyond its control as well, apart from infrastructure constraints impacting supply goods. A change in demand pattern in a country that has seen high economic growth for many years in a row too has had a bearing on inflation.
FE
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