Rigour and risk in Reserve Bank of India's reform push

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Under the recommendations of the panel, set up by Governor Raghuram Rajan, managing inflation would be made the primary policy goal of the RBI. Under the recommendations of the panel, set up by Governor Raghuram Rajan, managing inflation would be made the primary policy goal of the RBI.
SummaryCritics say the ideas would bring western-style rigour to an economy with emerging market problems.

into an often-messy political reality.

Rajan's predecessor at the RBI, Duvvuri Subbarao, repeatedly called on New Delhi to implement reforms to ease investment rules, clear infrastructure bottlenecks and cut government subsidies, but with little success.

The new policy set-up would raise the stakes for the government to act - a tall order, especially if another fragmented coalition emerges from the upcoming elections.

Governments have tended towards promoting growth and putting pressure on the RBI to keep monetary policy loose. The Mumbai-based central bank is not technically independent - the governor and his deputies are appointed by the government - although it generally enjoys latitude in policymaking.

Setting a CPI target of 4 percent over the long-term would remove some of the discretion in policymaking and at the same time strengthen the central bank's independence by insulating it from pressures from New Delhi.

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