RBI Governor Duvvuri Subbarao is not a name that springs to mind, when you think of unsung hero’s! But lets take a moment to look at the latest RBI decision, not to cut interest rates, even though the finance minister had blatantly gone out of his way to signal his desire for the same. It takes extraordinary courage and conviction to stand up to the finance minister, especially when you are a career bureaucrat and your future appointments may depend on government favor. Hearteningly, Dr. Subbarao has signaled that the RBI has a mind of it’s own, and that he personally is willing to stand by their highly informed opinion. The finance minister’s response? A terse, sulking remark that “we will go on the path of growth alone, if others are not willing to support us!”
This is why strong institutions and good bureaucrats are so important! They counter balance adventurism and short term’ism from the government, which is naturally inclined to do so because it has to face elections every 5 years!
What amazes me about the current finance ministry discourse, is that this is the same finance minister who wrote off over Rs. 50,000 crores of farmer loans in 2008. He is now talking of “fiscal consolidation” and our commitment towards controlling the fiscal deficit! Puh-lease! Need we remind ourselves that we are approaching election year? And in all likelihood, what seems to be happening is that the government desperately needs cash to control deficit, while announcing more sops at the same time. Some major policy decision of mass impact will need to be announced, perhaps around areas such as the food subsidy program.
The only way this can be achieved today, is by selling off some of the family silver! So the government has already publicly stated that it intends to raise Rs. 30,000 crores from sale of public sector undertakings in 2012-13. A critical requirement for this revenue target to be achieved is that the stock market will need to be bullish, and hence there appears to be a clear attempt to shore up market confidence through making all the right noises. Cutting interest rates to spur growth is a critical piece of this strategy.
Enter Governor Subbarao, who refuses to play along, and asks some simple questions. How are you going to control deficit unless you compress expenditure? Given your discretionary expenditure is low anyway, you have no option but to cut subsidies. The unspoken question then is, how do we believe that you will risk cutting subsidies while approaching election year? Quite the reverse is probable! So the good man says no, I wont play along! And we citizens can only say thank god for a few people of conviction left in our system!