Change of guard at Mint Road: old dilemma, new hope

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: This year, the release of the Reserve Bank of India (RBI) “Report on Currency and Finance 2006-08”, on the theme “The banking sector in India: emerging issues and challenges'' serves more than one purpose.

Apart from summing up various developments, along with specific dilemmas and concerns from a banking regulation and supervisory point of view, it holds clear briefings for the new RBI governor Duvvuri Subbarao from where to pick up the reins of RBI, after five years of the Reddy era. A few days ago, during the same week, the annual report released by the central bank had outlined economic and fiscal concerns, where, quite obviously, keeping a check on the ongoing double-digit inflation was the dominant issue.

It would be interesting to watch Subbarao - with his vast exposure in the area of economic and financial policy-making - address these issues with his own touch and thinking. Analysts, some of whom did not expect a change of guard at RBI at all at this critical juncture -- were of the opinion that the Reddy regime was conservative and has left an unfinished reform agenda, which may have to be completed within a deadline.

Subbarao, who was the finance secretary before being selected to head RBI for the next three years, is not new to the core issues of RBI's functioning, as he has acted as an interface between the government and the banking regulator.

In fact, Subbarao, as finance secretary, had made it clear that the monetary policy was the first line of defence to check runaway inflation. Though inflation has seen a downward trend in the past two weeks, settling at 12.34% at last count, experts still see a tough road ahead for the new governor. Taking a cue from his earlier statements, experts opine that Subbarao's possible action plan may be predictable and would, necessarily, be hawkish, as policymakers seek to bring down inflation to RBI's targeted 7% level by March 2009. And as Subbarao assumed charge last Friday, his first comments seemed to show that RBI-watchers were not on the wrong track. Said Subbarao on his priorities: “The immediate priority will be to manage inflation and anchor inflation expectations. The priority in the short-to- medium term will be, of course, to pursue financial sector reforms in the context of financial stability, price stability and above all, an ear firmly to the ground on real sector reforms.”