At a function to celebrate 80 years of the central bank PM Modi was all praise for guv Rajan
The much-talked-about spat between the Reserve Bank of India (RBI) and the government in setting up monetary policy committee and debt management function seemed to be buried on Thursday with the Prime Minister Narendra Modi praising the central bank governor Raghuram Rajan, saying that he is perfect in being able to explain tough economic issues.
This Modi said can happen only if there was a similarity in thinking on both sides.
"Raghuram comes to meet me every two to three months, and each time he brings three or four slides. He explains implications of RBI polices. I understand everything he is trying to tell me in those slides. This understanding cannot come about if the RBI and government are not in a perfect understanding with each other," Modi said at a function to mark 80 years of RBI. Modi also said that Rajan must have been a very good 'teacher' in the past.
In these meetings, Modi said he found Rajan "perfect" in explaining economic implications. Modi said he himself was not adept at understanding economic issues, but as the prime minister he had to learn and understand complex issues.
In his address, Rajan said: "There has always been a constructive dialogue between the government and the bank, informed by their respective time horizons and attitudes towards risk."
There have been talks of discord between the RBI and the government on a range of issues including inflation and interest rates. But both sides have maintained that there have been no differences.
Some of the budget proposals such as shifting the debt management functions from the RBI and also setting up the monetary policy committee are some of the issues under discussion.
The only worry that the RBI will have is if the members of the monetary policy committee are dominated by the government appointees rather than RBI officials. If this were to happen then the interest setting function of the RBI will be fully controlled by the government, leaving no ammunition with the RBI to tackle inflation. However, publicly both the sides have not said anything to reveal that the autonomy of the RBI may be under scrutiny.
Modi expressed satisfaction over the role played by the central bank under Rajan. "There is lot of similarity between the thinking of the RBI and government… This is absolutely essential. As a representative of the government, I express my satisfaction. RBI is performing its role and I congratulate Raghuramji and his team," he said.
At the same function, finance minister Arun Jaitley also congratulated Rajan, his team and past RBI governors for their contribution in making the country's economy resilient.
The RBI and the finance ministry had signed the Monetary Policy Framework Agreement on February 20 to bring inflation below 6% by January 2016. The target for fiscal 2016-17 and all subsequent years will be 4%. The agreement also said the governor — and, in his absence, the deputy governor (in charge of monetary policy) — will determine the policy rate as well as any other monetary measures, to achieve the target. The inflation in focus here is the Consumer Price Index (CPI), or retail inflation.
Finance minister Arun Jaitley had said the government would move to amend the RBI Act this year to form the MPC. But neither the budget nor the agreement (made public on March 2) gave any details about the MPC. The talk of the ongoing discord is about composition of the MPC. While RBI is batting for complete freedom in setting it up, the government wants a grip on it.
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