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Monday, September 19, 2011

RBI Governor DS Subbarao has earned more critics than admirers for his bold decisions

MUMBAI: When career bureaucrat Duvvuri Subbarao took the wheel at Mint Street in September 2008 at a time the financial world was crumbling, the popular belief was New Delhi would get a firm handle on monetary policy. The Lehman Brothers collapse and the 'synchronised' handling of the crisis between the government and central bank strengthened the belief.

Three years later and the next crisis possibly round the corner, the story is different. Subbarao has earned more critics in recent months for supposedly killing growth, but a few admirers too for his conviction. Events are unfolding to create a landscape similar to the one that confronted his predecessor Yaga Venugopal Reddy - heaps of criticism for supposedly stifling growth and innovation.

"It was unnecessary given the sharp deterioration in the global environment and a significant slowdown in domestic activity," said Tushar Poddar of Goldman Sachs after the governor raised policy rates 25 basis points last Friday amid slowing economic growth. A basis point is 0.01 percentage point.


"At a time economic policy should focus on the creation of jobs, it is unfortunate that the economy is being forced into a sluggish growth phase," said B Muthuraman, president, Confederation of Indian Industry.

Subbarao, who parroted the policy stance of global central bankers during much of his first term, is deviating significantly. Policymakers in developed nations are keeping rates near zero and Federal Reserve Chairman Ben Bernanke has promised to keep it low till the middle of 2013. Most Asian central bankers have left rates untouched this month and Turkey and Brazil have cut interest rates. Subbarao is the odd man out by promising to keep raising rates till prices cool.


"Subbarao is a pragmatic and astute central banker who has taken independent decisions based on his well-researched conviction," says Madan Sabnavis, chief economist at rating company Care.

"He has recognised inflation as being the single most important malaise afflicting the economy and pursued the goal of increasing rates, notwithstanding the pressures being exercised from different quarters, displaying a lot of character."

Industry has been seeking a halt to raising interest rates, which started with 'baby steps' in 2010 with the governor's public admission of confusion with reference to his position being similar to a warrior caught in 'padmavyuha', a battle formation that is easier to get in, but difficult to get out.

Source: Economic Times


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