The more that things change the same they remain is a common axiom that we are familiar with. Apparently the same is also applicable in the sphere of economics too. Very specifically to the Reserve Bank of India (RBI) India’s apex bank where life it appears goes around in full circles.
“Many of the issues that he addressed are still relevant,” says Dr. Duvvuri Subbarao, Governor Reserve Bank of India. Subbarao was speaking at the launch of a book by I.G. Patel a former Governor of the RBI, last week. So the concerns of Patel when he was a governor still resonate in the corridors of the RBI and are relevant to this day!
So what does this mean in context? Well, today we are concerned about the trade-off between containing inflation on the one hand and fostering growth on the other, are we not? Well this is something that Patel was concerned about too.
Patel noted that the supreme test of a monetary policy was to check prices without checking growth. “This is a policy concern that is valid even today,” says Subbarao noting that even after some 13 policy reviews, inflation is yet to be tamed. Subbarao did however point out that growth sacrifice if any would only be short-term and that India’s long-term growth was intact. “The relationship between growth and inflation is non-linear,” he says. Coming back to the devil-in-the-detail, what is an acceptable -Subbarao terms it as threshold - level of inflation? “Maybe five per cent…Inflation at this point of time is above the threshold,’ he agreed.
Another point that echoed across time is Communication…“Central banks have realised that open communication helps policy,” Subbarao stated.
This is a change from the policy of various central banks and not just the RBI, which till the 1990s did not encourage openness. Additionally, central banks stung by charges that they are an unelected body of officials that are deciding the policy that affects millions, have become more open to counter criticisms that such actions are counter to democracy. Remember that Central Banks are now more autonomous than ever before. “The dilemma is what to say and when to say it,” Subbarao explains.
He did note that the government and the RBI are not enemies but have the same goals. There is disagreement between all sections of government. “Wisdom arises out of disagreement,” Subbarao added.