RBI, heal thyself

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Surjit S Bhalla : Jan 31 2013, 03:35 IST

It was so easy to hide one’s follies just a few months ago. The former finance minister, and now president, Pranab Mukherjee, had made it so simple. With his ministry practising retrograde economics, the common explanation to all of India’s growth problems was “policy paralysis” at the Centre. To be sure, his policies were endorsed and perhaps even dictated by Sonia Gandhi’s National Advisory Council. The fact remains that India managed to have the most fiscally irresponsible policy under UPA 2: populism, high inflation, and sub-sub-normal growth.

A sad aspect of recent economic policy in India was that the practice of self-destructive populism at the finance ministry prior to September 2012 allowed the RBI, and other advisers and agents of the government, to practise sloppy analysis, and indulge in even sloppier policy recommendations. Worse, they could bathe themselves in contradictions and still not be held “accountable”. It was a win-win situation for most such advisers. If the policy worked, they could take the credit. If the policy did not work, they could point to policy paralysis, bad investor sentiment created by retrospective tax amendments, etc. In other words, there was plenty to point fingers at, and no role for any action besides the lazily obvious.

Since September 12, 2012, the fiscal policy has changed markedly for the better. Policy paralysis nightmare at the Centre is over. On Tuesday, the RBI reduced repo rates for the first time since April 2012, and did so by the minimum tradition allowed — 25 basis points.

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Reader's Comments (3)| Post a Comment

RBI Policy is transparent and rational

M G WARRIER | 01-Feb-2013Reply | Forward

The writer Mr. Bhalla has successfully demonstrated what obfuscation (the art of obscuring, confusing mind) can be at its worst. Some use words which are a little tough to escape scrutiny. Whatever be the other shortcomings in RBI%u2019s policy formulation, the period of RBI%u2019s articulation of policy during Dr Subbarao%u2019s tenure has been the most %u2018transparent%u2019 and backed with rationale for the approach accepted at every stage. Perhaps January 29 Monetary Policy statement was an exception of sorts. For this, reasons are not far to seek. By the graceful action of reducing repo rate and CRR by a 0.25 percentage point, perhaps the Reserve Bank of India ( RBI) was probably trying to break the stalemate in governance in the financial sector caused by the finance ministry and the central bank, giving an impression that there was more than the permissible levels of %u201Cgive and take%u201D between them. Let us believe that RBI and GOI are on the same page now.

RBI, Correct Decision

vishal | 31-Jan-2013Reply | Forward

I think the writer has forgotten to see what has have been the changes in the global economy because of the Euro Crisis, rise in Crude oil prices, high unstability in the african countries which not only affected India but also the other developed and developing countries and big question here is why a government during a period when the next LS elections are going to be held would take such a decision thereby lossing its own vote bank, I think the author has missed out the above points and put up his thoughts like a comman man like you and me without giving deep thoughts to the reasons for the recent developments in the India economy

RBI, heal thyself

u s pandey | 31-Jan-2013Reply | Forward

Mr. Bhalla is suffering from senility. he should help himself and help the readers of IE by getting himself examined by a psychiatrist and thereby starting the process of healing.