Outgoing Reserve Bank governor D. Subbarao has done a great service to the country by setting the record straight, and not without his wry sense of humour, on his monetary policies on inflation, growth and the rupee, and all that is wrong with India’s economy. His Palkhiwala Memorial Lecture is, in fact, a must-read for ministers and bureaucrats to understand the ills ravaging our economy. While admitting some liquidity tightening may have led to a slowdown in growth,
Dr Subbarao emphasised that the main reason were supply side bottlenecks that required government action.
Dr Subbarao will go his own way, but the country must face the distressing state of the economy, where jobs are not being created. One hopes that the government takes his positive criticism in the spirit that it was made, and tackle the supply side issues that are only worsening. Dr Subbarao, significantly, warned against thinking that the impending quantitative easing programme of the US Federal Reserve, that led to a sparkling illusion that “all is well”, is the real cause of India’s current rupee crisis. The root cause, particularly of the current account deficit, is more due to domestic structural factors, he said.
Dr Subbarao took a delicate dig at finance minister P. Chidambaram, who in a fit of despair had once said he would walk alone if necessary to tackle economic woes. Dr Subbarao, quoting a former German Chancellor, hoped Mr Chidambaram would one day say, during his walk alone, that “thank God the RBI exists”.