RBI governor doesn't serve politicians, says former RBI governor Subbarao
Hyderabad: Asserting the Reserve Bank of India’s central role in maintaining the financial stability of the country, former RBI governor D. Subbarao on Saturday said that an independent central bank is essential in democratic countries, whose government may tend to give preference to short-term benefits due to electoral compulsions.
Speaking about the love-hate relationship between central bankers and governments across the world, Mr Subbarao said: “Typically, governments in democratic countries take a short term view due to electoral compulsions whereas central banks take long term view to provide financial stability, which is key for economic growth. And this is the cause of friction between the central bank and the government.”
Mr Subbarao had a frosty relationship with finance ministers — P. Chidambaram and Pranab Mukherjee — who prodded him unsuccessfully to reduce interest rates to support economic growth rate.
The former RBI governor’s focus remained on tackling inflation, which earned him public disapproval and vindicative actions by officials — an account of which he mentioned in his book.
Referring to the criticism of senior Congress leader against his tell-all book, Mr Subbarao said, “I read reports of Dr Jairam Ramesh comments on me. And I quote: This controversy, which now Dr Subbarao has also entered, it is most unnecessary... because ultimately the finance minister has to weigh so many considerations, whereas the governor of RBI can afford to be single-minded in his approach. Prime Ministers cannot, Finance Ministers certainly cannot (afford to be single-minded in their approach). So, I think Dr Subbarao has done grave injustice to his political masters.”
Reacting to these charges, Mr Subbarao said: “I agree with Dr Ramesh that finance ministers cannot be single-minded in their approach. Precisely because of this, we need an independent RBI for a long-term approach. Governments cannot ensure stability because they may have to focus on short term benefits. But long-term financial stability is important for the country’s economic growth.”
With regard to doing injustice to political masters, he said: “Job of the RBI governor is not do justice to political masters but it is to ensure larger good of the country.”
The former RBI governor has also disapproved farmer loan waivers as it tends to encourage defaults in the long run. “This is not a solution. One needs to address the root cause of farmer distress,” Mr Subbarao said.
Bad loans not just because of crony businessmen
Former RBI governor D. Subbarao on Saturday claimed that higher bad loans in the Indian banking system is not entirely because of crony capitalism.
“The bad loan problem had started sometime in 2010-2011. There were many causes for this particular situation. One of them was that banks used an RBI provision for restructuring ill-liquid loans to renew insolvent loans.”
“There were also stress in some sectors and bad global economic situation. So NPAs are not entirely because of crony capitalism,” the former central banker said.
