Raghuram Rajan’s selection as the next RBI Governor is a significant step taken up by the Finance Ministry and Prime Minister in the times when the economy needs a strong push to retrace its growing phenomena. Rajan’s international monetary policies understanding and the global economist view would help RBI to take some immediate steps to enhance the country’s economic stance which could help in bringing stability and positive sentiment across varied global investors. That’s a huge advantage by Rajan’s appointment but on the other hand Subbarao’s tenure was a landmark period for the country’s economic sustainability amidst the global financial tremors.
Though there are some perennial problems which were faced by Subbarao and expected to be the same with Rajan are as:
- · Independence in taking decisions, as in, Governmental interference with the set objectives of RBI has always been on crossroads
- · Inflation versus GDP growth phenomenon has always been on a scanner
- · Monetary policies objectives hampering the Fiscal consolidation plan or vice versa has continuously been a debatable topic
Inspite of all the ideological clashes with the Government, Dr. Subbarao has always been unfazed by the Finance Ministry pressures and did what was essential to keep the Inflationary pressures in control. The global meltdown in 2008 was a character test for Subbarao where the RBI’s stringent policies made the so called globally attractive instruments unlucrative for the domestic economy, resulting in India being one of the countries who came out of the recession in a short span.
Wholesale Price Index has reached two to three years low in the recent past (CPI because of its base effect is still hovering in double digits), Gold Imports are touching new lows which will obstruct the widening of CAD, Dollar reserve has touched the all time high (but could have been a bit more higher) and coming out with proposals of having more banks which would help in achieving the financial inclusion objective.
All these outcomes really make Dr. Subbarao as one of the most revered RBI Governor in the years to come and his prudence and eccentric monetary policy reviews would always be remembered.
On the other hand many critics believe that Dr. Subbarao’s tenure was not that successful because our GDP growth has plummeted to around 5% from a 8% growing nation and corporates don’t get enough leverage to grow with tight monetary stance. But on the other hand, as Dr. Subbarao has always iterated that the Central Bank’s main objective is to cool off the inflationary pressures which would in an indirect manner provide impetus to growth and not directly impacting the GDP growth percentage. This could have happened only if the stagnant policy implementation by the government was avoided. Because both the Government and Central Bank has to work in tandem to achieve the desired growth. An institution on its own can not make the growth engine run for a nation which is so diversified and has more internally inflicted hurdles than the global phenomenon.
Raghuram Rajan will definitely feel a little uneasy with the next Lok Sabha elections nearing but he is undoubtedly a great successor to a great predecessor. There is a lot of action guaranteed on the Mint street in the months to come. Stay tuned.