RBI chief takes a dig at Chidambaram

Mumbai (PTI): Bringing their differences into open, outgoing RBI Governor D Subbarao on Thursday took a dig at Finance Minister P Chidambaram for his comment once that he would "walk alone" to ensure growth in the face of tight money policy of the central bank.

A week before he demits office, Subbarao referred to a lot of media coverage on policy differences between the government and the Reserve Bank and the issue of autonomy and accountability. "Gerard Schroeder, the former German Chancellor, once said, 'I am often frustrated by the Bundesbank. But thank God, it exists.' "I do hope Finance Minister Chidambaram will one day say, 'I am often frustrated by the Reserve Bank, so frustrated that I want to go for a walk, even if I have to walk alone. But thank God, the Reserve Bank exists'," Subbarao said in his last public lecture as RBI Governor.

He was obviously referring to a statement of Chidambarm in October last year that "if the government has to walk alone to face the challenge of growth then, 'we will walk alone'." Chidambaram was then upset over RBI's decision to keep the interest rates high despite government unveiling a five-year fiscal consolidation road map.

In a forthright "last public lecture" before he retires next week, Subbarao was on Thursday sharply critical of the government, blaming its "loose fiscal stance" for the current economic woes, and warned that the root cause of rupee depreciation is "domestic structural factors."

While the speed and timing of the rupee's depreciation was due to the markets reacting to US Fed announcements, Subbarao said, "We will go astray, both in the diagnosis and remedy, if we do not acknowledge that the root cause of the problem is domestic structural factors."

He said it would be "misleading" to blame recent policy pronouncements of the US Federal Reserve for the decline in rupee, which has slid 23 per cent against dollar this fiscal. "...There has been a growing tendency to attribute all of this (ferocity of rupee depreciation) to the 'tapering' of ultra easy monetary policy by the US Fed. Such a diagnosis, I believe, is misleading," he said in his last public lecture as RBI Governor.

While some of the growth slowdown was attributable to the RBI's monetary tightening, he said, "India's economic activity slowed owing to a host of supply-side constraints and governance issues, clearly beyond the purview of the RBI."

Blaming the "loose fiscal stance of government during 2009-12" for slow growth and high inflation, he said, "Had the fiscal consolidation been faster, it is possible that monetary policy calibration could have been less tight." The Governor has often been criticised from within the government for his tight money policy at the cost of growth.