Key decisions of central bank cannot be left to politicians, says former RBI Governor Subbarao

Former Governor of the Reserve Bank of India (RBI) Duvvuri Subbarao on April 24 said key decisions tasked to the central bank such as reining in inflation änd ensuring price stability cannot be delegated to politicians as the latter have a short cycle.

Former Governor of the Reserve Bank of India (RBI) Duvvuri Subbarao on April 24 said key decisions tasked to the central bank such as reining in inflation änd ensuring price stability cannot be delegated to politicians as the latter have a short cycle.

“You can’t leave those decisions to politicans, because politicans have a short cycle [and] they are run by electoral calendar [whereas] these decisions have to be taken with a long term perspective,” Mr.Subbarao told the launch event of his book ‘Just A Mercenary? Notes from My Life and Career’ at the Kautilya School of Public Policy, GITAM Deemed to be University, near here.

It is the responsibility of the central bank to maintain price stability and lower and steady inflation. These required painful decisions such as those related to money supply and interest rates, which in some sense curbs growth atleast in short term. “You can’t leave those decisions to politicans...,” the former IAS officer said, pointing out that decisions on price stability, monetary policy were entrusted to a distinct body called the central bank which operates at an arm’s length from the government.

Noting that tensions between the central bank and the government are hardwired into the system, Mr. Subbarao, who was responding to queries on his tenure as RBI governor, said politicians are loathe to giving autonomy to the central bank “because they want their own compulsions to be satisfied. Hence tensions between the government and central bank were there in Japan, Europe, Turkey, England and the US.

“While the U.S. president can say anything about the central bank and the markets [will brush it off and perform because institutions there are quite mature, in India our institutions are not so matured... so any skirmish or tension like this will lead to undesirable instability in the markets,” he cautioned, underscoring the need for the governemnts and the central banks to be more careful on how they manage their relationship.

Mr. Subbarao, who is a visiting professor at Kautilya School, spoke on his IAS career, the importance for civil servants to be keep ears to the ground and not rely on technology alone and gender parity in civil services. He also favoured a conduct role that bars civil servants from entering active politics before a cooling off period after their relinquisihing the office.

The conversation with the former Union Finance Secretary and Secretary to the Prime Minister’s Economic Advisory Council was moderated by journalist and visiting faculty at the Kautilya School of Public Policy Smita Sharma. Dean Syed Akbaruddin and others participated.