First of all, my sincere thanks to the Nani Palkhivala
Memorial Trust, particularly Shri Y.H. Malegam, the widely respected
Chairman of the Trust, for extending me the honour of delivering the
Palkhivala Memorial Lecture for this year. I know many eminent thought
leaders had delivered this memorial lecture in the past, and I attach a
lot of value to adding my name to that very select list.
Nani Palkhivala
2. I did not have the privilege of meeting or
interacting with late Shri Palkhivala. He was already a preeminent public
intellectual in the country by the time I had entered the IAS in the
early 1970s. But I count myself among the millions of educated Indians
who were deeply impressed by Shri Palkhivala’s commitment to protecting India’s
democratic institutions, and the intellectual vigour with which he did
so. In a career spanning over six decades, he distinguished himself as a
brilliant lawyer, a perceptive political scientist, an intelligent
communicator and an erudite diplomat, leaving behind a legacy that
continues to influence our public discourse in several areas.
Topic of My Lecture
3. I deliberated quite a bit on an appropriate topic
for a lecture to honour the memory of such an eminent public
intellectual. I was also conscious of the fact that this will be my last
public lecture as the Governor of the Reserve Bank of India (RBI). Quite
understandably, given the Palkhivala context, my thoughts started
centering around the role and responsibility of a central bank in a
democratic structure. Central banks make macroeconomic policy that
influences the everyday life of people; yet they are managed by unelected
officials appointed by the government. Such an arrangement is deliberate,
based on the logic that an apolitical central bank, operating autonomously
within a statutorily prescribed mandate and with a longer time
perspective, is an effective counterpoise to a democratically elected
government which typically operates with a political mandate within the
time horizon of an electoral cycle.
4. An autonomous and apolitical central bank is a
delicate arrangement too, and will work only if the government respects
the autonomy of the central bank, and the central bank itself stays
within its mandate, delivers on that mandate and renders accountability
for the outcomes of its policies and actions.
5. Putting the three elements of today’s lecture
context together - Shri Palkhivala’s exemplary commitment to preserve and
promote values and institutions of democracy in India; the Reserve Bank’s
role in the democratic edifice of India; and the completion of my term as
the Governor of the Reserve Bank - I determined that the best way I can
pay tribute to Shri Palkhivala is to focus on a topic that threads
together these three elements. That explains my topic for today: ‘Five
Years of Leading the Reserve Bank: Looking Ahead by Looking Back’.
“May you live in interesting times!”
6. The Chinese have an adage: “May you live in
interesting times.” I can hardly complain on that count. I had come into
the Reserve Bank five years ago as the ‘Great Recession’ was setting in,
and I am finishing now as the ‘Great Exit’ is taking shape, with not a
week of respite from the crisis over the five years.
7. From a central banking perspective, history will
mark the last five years for two distinct developments. The first is the
extraordinary show of policy force with which central banks responded to
the global financial crisis. This has generated a vigorous debate on the
short-term and long term implications of unconventional monetary policies
as also on the responsibility of central banks for the cross border
spillover impact of their policies. The second historical marker will be
the manner in which, reflecting the lessons of the crisis, the mandate,
autonomy and accountability of central banks are being redefined in
several countries around the world. Notwithstanding all the tensions and
anxieties of policy management during an admittedly challenging period, I
consider myself privileged to have led one of the finest central banks in
the world during such an intellectually vigorous period.
8. Against that context, I want to divide my lecture
today on “Five Years of Leading the Reserve Bank: Looking Ahead by
Looking Back” into two segments. In the first segment, I want to look
back over the last five years and give my assessment of the macroeconomic
developments during this period and the Reserve Bank’s response. In the
second segment, I will address the major challenges for the Reserve Bank
on the way forward.
I. Macroeconomic
Developments Over the
Last Five Years and RBI’s Response
9. For analytical purposes, macroeconomic developments
over the last five years can be divided into three distinct phases: (i)
The global financial crisis and RBI’s response; (ii) Exit from the crisis
and RBI’s struggle with growth-inflation dynamics; and (iii) The external
sector strains which have accentuated over the last few months and RBI’s
efforts to restore stability in the currency market.
First Phase (2008/09) - Crisis Management
10. Given all the water that has flown under the
bridge since then, the Lehman crisis of 2008 seems an eternity away. Yet,
that was the reality that I faced within less than two weeks of taking
over as Governor. My intent here is not to rehash the events of those
days, but try and put that crisis - and therefore the policy response -
in perspective.
11. In order to appreciate that perspective, just
throw your mind back to those heady days of 2008. Recall that India was
on the verge of being christened the next miracle economy. Growth was
surging along at 9 per cent. Fiscal deficit was on the mend. The rupee
was appreciating and asset prices were rising. There were inflation
pressures but the general perception was that inflation was a problem of
success, not of failure. Most importantly, we thought we had ‘decoupled’
- that even if advanced economies went into a down turn, emerging market
economies will not be affected because of their improved macroeconomic
management, robust external reserves and sound banking sectors.
12. The crisis dented, if not fully discredited, the
decoupling hypothesis. It affected virtually every country in the world,
including India.
So, why did India
get hit? The reason was that by 2008, India was more integrated
into the global economy than we recognized. India’s two way trade
(merchandize exports plus imports), as a proportion to GDP, more than
doubled over the past decade: from about 20 per cent in 1998/99, the year
of the Asian crisis, to over 40 per cent in 2008/09, the year of the
global crisis.
13. If our trade integration was deep, our financial
integration was even deeper. A measure of financial integration is the
ratio of total external transactions (gross current account flows plus
gross capital account flows) to GDP. This ratio had more than doubled
from 44 per cent in 1998/99 to 112 per cent in 2008/09, evidencing the
depth of India’s
financial integration.
14. What this meant was that as the global financial
and economic conditions went into a turmoil, we were affected through
trade, finance and confidence channels. The Reserve Bank responded to the
crisis with alacrity, with policies aimed at keeping our financial
markets functioning, providing adequate rupee liquidity, and maintaining
the flow of credit to the productive sectors of the economy.
Lessons in Crisis Management
15. As someone said, this crisis was too valuable to
waste. In the event, we learnt several lessons in crisis management. I
will only list the important ones. First, we learnt that in a global
environment of such uncertainty and unpredictability, policy action has
to be swift, certain and reassuring. Also, during crisis times, it helps
enormously if governments and central banks act, and are seen to be
acting, in concert. Second, we learnt that action is important, but
communication is even more important. When the economic environment is
uncertain, market players and economic agents look up to governments and
central banks for both reassurance and clarity. Indeed, communication was
a critical tool all central banks, including India, adopted in those heady
autumn days of 2008.
16. The third lesson we learnt is that even in a
multi-nation crisis, governments and central banks have to adapt their
response to domestic conditions. There is typically pressure on every
country to copy the crisis response of other countries, especially of
advanced economies (AEs). For example, AEs were forced to resort to
quantitative easing (QE) to loosen monetary conditions, raise inflation
expectations and lower real interest rates. Was there any need for
emerging market (EM) central banks to do so? I believe there wasn’t
because they had sufficient conventional ammunition left. Instead, what
we had to show was that we were fully prepared to use it.
17. While on the subject of crisis, I also want to
share with you a dilemma. Crisis management is a percentage game. We have
to do what we think has the best chance of reversing the momentum. At the
same time, we have to weigh the short-term benefits against the longer
term consequences, including moral hazards. In 2008, massive infusion of
liquidity was seen as the best bet. Indeed, in uncharted waters, erring
on the side of caution meant providing the system with more liquidity
than considered adequate. This strategy was effective in the short-term,
but with hindsight, we know that excess liquidity may have reinforced
inflation pressures. In the thick of the crisis, the judgement call we
had to make was about balancing the benefits from preventing a crisis
against the costs of potential inflation down the line. Remember we were
acting in real time. Analysts who are criticising us are doing so with
the benefit of hindsight.
Second Phase (2010/11) - Exit from the
Crisis
18. India
recovered from the crisis sooner than even other emerging economies, but
inflation too caught up with us sooner than elsewhere. Inflation, as
measured by the wholesale price index (WPI), which actually went into
negative territory for a brief period in mid-2009, started rising in late
2009, and had remained around 9-10 per cent for all of 2010 and much of
2011, reflecting both supply and demand pressures. Supply pressures
stemmed from elevated domestic food prices and rising global prices of
oil and other commodities. Demand pressures stemmed from rising incomes
and sudden release of pent up demand as recovery began. The supply shocks
and demand pressures combined to trigger a wider inflationary process. We
were caught in the quintessential central banking dilemma of balancing
growth and inflation.
19. In response to the inflation pressures, the
Reserve Bank reversed its crisis driven accommodative monetary policy as
early as October 2009 and started tightening. We have been criticized for
our anti-inflationary stance, ironically from two opposite directions.
From one side, there were critics who argued that we were too soft on inflation,
that we were late in recognizing the inflation pressures, and that even
after recognizing such pressures, our ‘baby step’ tightening was a timid
and hesitant response. Had the Reserve Bank acted quickly and more
decisively, inflation could have been brought under control much sooner.
From the other side of the spectrum, we were criticized for being too
hawkish, mainly on the argument that there was no need for the Reserve
Bank to respond to inflation driven largely by food and supply shocks,
and that we only ended up stifling growth without easing inflation
pressures.
20. Let me respond to this criticism from both ends of
the spectrum.
21. To those who say that we were behind the curve, my
simple response is to recall the context of the years 2010 and 2011. Much
of the world was still in a crisis mode, the eurozone crisis was in full
bloom and there was a lot of uncertainty globally. And as we learnt from
the experience of the 2008 Lehman episode, we remained vulnerable to
adverse external developments. Our ‘baby steps’ were therefore a delicate
balancing act between preserving growth on the one hand and restraining
inflation on the other.
22. With the benefit of hindsight, of course, I must
admit in all honesty that the economy would have been better served if
our monetary tightening had started sooner and had been faster and
stronger. Why do I say that? I say that because we now know that we had a
classic V-shaped recovery from the crisis, that growth had not dipped in
the Lehman crisis year as low as had been feared, and that growth in the
subsequent two years was stronger than earlier thought. But remember, all
this is hindsight whereas we were making policy in real time, operating
within the universe of knowledge at that time. Just as an aside, this episode
highlights the importance of faster and more reliable economic data for
effective monetary policy calibration.
23. Let me now respond to the doves who argue that the
Reserve Bank was too hawkish in its anti-inflationary stance.
24. First, I do not agree with the argument that the
Reserve Bank failed to control inflation but only ended up stifling
growth. WPI inflation has come down from double digits to around 5 per
cent; core inflation has declined to around 2 per cent. Yes, growth has
moderated, but to attribute all of that moderation to tight monetary
policy would be inaccurate, unfair, and importantly, misleading as a
policy lesson. India’s
economic activity slowed owing to a host of supply side constraints and
governance issues, clearly beyond the purview of the Reserve Bank. If the
Reserve Bank’s repo rate was the only factor inhibiting growth, growth
should have responded to our rate cuts of 125 bps between April 2012 and
May 2013, CRR cut of 200 bps and open market operations (OMOs) of `1.5 trillion last year.
25. Admittedly, some growth slowdown is attributable
to monetary tightening. Note that the objective of monetary tightening is
to compress aggregate demand, and so some sacrifice of growth is
programmed into monetary tightening. But this sacrifice is only in the
short-term; there is no sacrifice in the medium term. Indeed, low and
steady inflation is a necessary precondition for sustained growth. Any
growth sacrifice in the short term would be more than offset by sustained
medium term growth. I want to reiterate once again that the Reserve Bank
had run a tight monetary policy not because it does not care for growth, but because it does care
for growth.
26. Critics of our monetary tightening must also note
that our degrees of freedom were curtailed by the loose fiscal stance of
the government during 2009-12. Had the fiscal consolidation been faster,
it is possible that monetary policy calibration could have been less
tight.
27. And now let me respond to the criticism that
monetary policy is an ineffective tool against supply shocks. This is an
ageless and timeless issue. I am not the first Governor to have to
respond to this, and I know I won’t be the last. My response should come
as no surprise. In a $1500 per-capita economy - where food is a large
fraction of the expenditure basket - food inflation quickly spills into
wage inflation, and therefore into core inflation. Indeed, this
transmission was institutionalized in the rural areas where MGNREGA wages
are formally indexed to inflation. Besides, when food is such a dominant
share of the expenditure basket, sustained food inflation is bound to
ignite inflationary expectations.
28. As it turned out, both these phenomena did play
out - wages and inflation expectations began to rise. More generally,
this was all against a context of consumption-led growth, large fiscal
deficits, and increased implementation bottlenecks. If ever there was a
potent cocktail for core inflation to rise this was it. And it did -
rising from under 3 per cent at the start of 2010 to almost 8 per cent by
the end of the next year. It is against this backdrop that our
anti-inflationary stance in 2010 and 2011 needs to be evaluated.
Third Phase (2012/13) - Pressures in the
External Sector
29. Remember, I began my speech with the old Chinese
saying - “May you live in interesting times.” So, as inflation began to
moderate yielding space for monetary easing to support growth, we got
caught up with external sector strains over the last two years and a
sharp depreciation of the rupee over the last three months. There has
been dismay about the ferocity of depreciation; there has also been a
growing tendency to attribute all of this to the ‘tapering’ of its ultra
easy monetary policy by the US Fed.
30. Such a diagnosis, I believe, is misleading.
Admittedly, the speed and timing of the rupee depreciation have been due
to the markets factoring in ‘tapering’ by the US Fed, but we will go
astray both in the diagnosis and remedy, if we do not acknowledge that
the root cause of the problem is domestic structural factors.
31. What are these structural factors? At its root,
the problem is that we have been running a current account deficit (CAD)
well above the sustainable level for three years in a row, and possibly
for a fourth year this year. We were able to finance the CAD because of
the easy liquidity in the global system. Had we used the breathing time
that this gave us to address the structural factors and brought the CAD
down to its sustainable level, we would have been able to withstand the
‘taper’. In the event, we did not. We therefore made ourselves vulnerable
to sudden stop and exit of capital flows driven by global sentiment; the
eventual cost of adjustment too went up sharply.
32. But what drives the CAD so high? Basic economics
tells us that the CAD rises when aggregate demand exceeds aggregate
supply. There is an argument that this logic is not applicable to us in
the current juncture given the sharp slow down in growth. But we need to
recognize that the CAD can increase substantially even in a low growth
environment if supply constraints impact both growth and external trade
as has been the case with us.
33. The only lasting solution to our external sector
problem is to reduce the CAD to its sustainable level and to finance the
reduced CAD through stable, and to the extent possible, non-debt flows.
Reducing the CAD requires structural solutions - RBI has very little
policy space or instruments to deliver the needed structural solution.
They fall within the ambit of the government. Structural adjustment will
also take time. In the interim, we need to stabilize the market
volatility, a task that falls within the domain of the Reserve Bank.
34. It is the avowed policy of the Reserve Bank not to
target a level of exchange rate and we have stayed true to that policy. Our
efforts over the last few years, particularly the last three months, have
been to smoothen volatility as the exchange rate adjusts to its market
determined level so as to make the near-term cost of adjustment less
onerous for firms, households and banks.
35. There has been criticism that the Reserve Bank’s
policy measures have been confusing and betray a lack of resolve to curb
exchange rate volatility. Let me first of all reiterate that our
commitment to curbing volatility in the exchange rate is total and
unequivocal. I admit that we could have communicated the rationale of our
measures more effectively.
36. But our actions were consistent. Our capital
account measures were aimed at encouraging inflows and discouraging
outflows. Also, we tightened liquidity at the short end to raise the cost
of short-term money so as to curb volatility. At the same time, we wanted
to inhibit the transmission of the interest rate signal from the short
end to the long end as that would hurt flow of credit to the productive
sector of the economy. So, we instituted an Indian version of “operation
twist”.
37. I must reiterate here that it is not the policy of
the Reserve Bank to resort to capital controls or reverse the direction
of capital account liberalization. Notably, the measures that we took did
not restrict inflows or outflows by non-residents.
II. Challenges for
the Reserve Bank on the Way Forward
38. Now let me turn to the second part of my lecture.
Several times over the last five years. I have often been asked about the
challenges for the Reserve Bank on the way forward. As I finish my term
as Governor of this great institution, this is a question that has been
playing repeatedly in my mind. I am deeply conscious that this is not a
seminar, so I will highlight, but only briefly, four challenges that the
Reserve Bank will need to address in order to remain a premiere policy
institution.
Managing Policy in a Globalizing World
39. The first challenge on my list is for the Reserve
Bank to learn to manage both economic and regulatory policies in a
globalizing world. The global financial crisis, the eurozone sovereign
debt crisis as well as the currency market volatility over the last few
months have emphatically demonstrated how external developments influence
our domestic macroeconomic situation in complex, uncertain and even
capricious ways. In making our policies, we have to factor in external
developments, particularly the spillover impact of the policies of
advanced economies on our macroeconomy. This will become even more
important as India’s
integration with the global economy increases. Surely, globalization is a
double edged sword. It comes with costs and benefits. The Reserve Bank
needs to sharpen the analytical and intellectual rigour to make policies
that exploit the advantages of globalization and mitigate its risks.
40. Over the last five years, as an institution, we
have learnt quite a lot about managing policy in a globalizing world. Yet
the learning curve ahead is steep. My wish is that the Reserve Bank
should take the lead in setting standards for how an emerging market
central bank manages policies in a globalizing world. In other words, we
should become the best practice that other central banks emulate.
Knowledge Institution
41. The second on my list of challenges is that the
Reserve Bank must position itself as a knowledge institution. The crisis
has shown that knowledge matters. Those central banks which are at the
frontiers of domain knowledge and are pushing the envelope in terms of
policies and actions will be better equipped to deal with the
complexities of macroeconomic management in an increasingly dynamic and
interconnected world.
42. There is obviously no template or manual for
becoming a knowledge institution nor is there a comprehensive list of
attributes. Becoming a knowledge institution is a continuous process of
learning from the best practices in the world, oftentimes reinventing
them to suit our home context, pushing the envelope, asking questions,
being open minded, acting with professionalism and integrity and
encouraging an institutional culture that cuts through hierarchies. The
Reserve Bank will also need to review its HR policies so as to build a
talent endowment that can meet the challenges on the way forward.
Keep Your Ear Close to the Ground
43. When I was appointed Governor of the Reserve Bank
in 2008, I went to call on the Prime Minister before I took charge. A man
of few words as we all know, he told me one thing that stuck in my mind:
“Subbarao, you are moving from long experience in the IAS into the
Reserve Bank. In the Reserve Bank, one runs the risk of losing touch with
the real world. With your mind space fully taken up by issues like
interest rates, liquidity traps and monetary policy transmission, it is
easy to forget that monetary policy is also about reducing hunger and
malnutrition, putting children in school, creating jobs, building roads
and bridges and increasing the productivity of our farms and firms. Keep
your ear close to the ground.”
44. In the five years that I have been at the Reserve
Bank, I have followed this wise counsel to the best of my ability. We
have introduced a number of initiatives. The outreach programme of
village visits by top executives of the Reserve Bank, village immersion
programme for our younger officers, town hall shows and meetings with
focus groups, conferences with frontline managers, conventions of
business correspondents, to mention some of the important ones.
45. As a result of all these initiatives, the Reserve
Bank is more conscious today than before that the policies it makes have
a meaning if, and only if, they make a positive difference to the real
world. For example, one of the core concerns of the Reserve Bank’s
anti-inflationary stance is that inflation hurts, but hurts the poor much
more than the better off. But the poor are not an organized, articulate
lobby. As a public policy institution, the Reserve Bank has the
responsibility to make that extra effort to listen to the silent ‘voice
of the poor’.
46. Outreach is not a discrete task; it is a
continuous process. As I said earlier, the policies of the Reserve Bank
impact the everyday lives of people. The Reserve Bank will remain a
useful and relevant institution only if it is able to understand the
hopes and aspirations of ordinary people and factor them into its policy
calculus.
Autonomy and Accountability
47. The crisis over the last five years has reopened
some fundamental questions about central banks - their mandates, the
limits to their autonomy and the mechanisms through which they render
accountability. These questions are playing out in India
too. Several committees have suggested that the mandate of the Reserve
Bank should be narrowed on the argument that its currently broad mandate
is diluting its focus on price stability - the core concern of monetary
policy. The Financial Sector Legislative Reforms Commission (FSLRC) which
submitted its report to the Government in March this year has argued that
the mandate of the Reserve Bank should be restricted to monetary policy
and regulation of banks and the payment system.
48. In the context of the mandate of central banks,
one needs to keep in mind that the global financial crisis was a powerful
rebuke to central banks for neglecting financial stability in the pursuit
of price stability. In the immediate aftermath of the crisis, which saw
the US Fed and other central banks provide liquidity in spades and use
unconventional tools, a consensus had emerged that financial stability
needed to be explicit in the objectives of monetary policy. Then the euro
zone debt crisis forced the ECB to bend and stretch its mandate to bail
out sovereigns, in essence implying that a central bank committed to
financial stability could not ignore sovereign debt sustainability. Put
differently, the fundamentalist view of a central bank with a
single-minded objective (price stability), and a single instrument
(short-term interest rate) is being reassessed across the world.
49. The jury is still out, but a consensus is building
around the view that central banks now need to balance price stability,
financial stability and sovereign debt sustainability. How this is to be
achieved is the big question.
50. Clearly there are no easy answers. But there are
certain tenets that must inform the thinking over this issue. First, the
fundamental responsibility of central banks for price stability should
not be compromised. Second, central banks should have a lead, but not
exclusive, responsibility for financial stability. Third, the boundaries
of central bank responsibility for sovereign debt sustainability should
be clearly defined. Fourth, in the matter of ensuring financial
stability, the government must normally leave the responsibility to the
regulators, assuming an activist role only in times of crisis.
51. The crisis has made a strong case for a more
expanded role for central banks. Do we ignore all that, and fall back on
the old understanding of what a central bank should or should not do to
change the RBI’s remit and scope of influence? That could turn out to be
sub-optimal, even risky.
52. Related to all this is the question about the
limits to the autonomy of the Reserve Bank and where and to what extent
it should defer to the executive. Finally, there are also questions about
the accountability of the Reserve Bank for the outcomes of its policies.
53. As Governor of the Reserve Bank, I not only
welcomed the debate on these issues, but even encouraged it, in the firm
belief that such a debate is in the larger public interest. At various
times and in various contexts, I have responded to the issues in the
debate. This is not the time and platform for extensive engagement on
these issues. Here, I only want to give my broad view.
54. Admittedly, the Reserve Bank has a mandate that is
wider than that of most central banks. This is an arrangement that has
served the economy well. There are synergies in the various components of
the Reserve Bank’s mandate and we should not forefeit those synergies.
Surely, our institutional structures must adapt to the changing
socioeconomic context, but any such change must be brought about only
after extensive debate and discussion.
55. Notably, in a full length feature on the Reserve
Bank in 2012, The Economist had said that the RBI is a role
model for the kind of full service central bank that is back in fashion
worldwide. There is something to that.
56. It is also important that the mandate of the
Reserve Bank is written into the statute, so that it is protected from
the political dynamics of changing governments.
57. In the opening part of my lecture today, I
explained the rationale for an autonomous central bank. Like in most
other developing economies, the Reserve Bank was not born autonomous; it
gained its autonomy over time as a result of the lessons of international
experience and the maturity of our political executive who saw the
benefits of preserving the autonomy of the Reserve Bank. On its part, the
Reserve Bank earned this autonomy by staying committed to the pursuit of
larger public interest.
58. Accountability is the flipside of autonomy. The
Reserve Bank of India Act does not prescribe any formal mechanism for
accountability. Over the years, however, certain good practices have
evolved. Let me briefly illustrate. We explain the rationale of our
policies, and where possible indicate expected outcomes. The Governor
holds a regular media conference after every quarterly policy review
which is an open house for questions, not just related to monetary
policy, but the entire domain of activities of the Reserve Bank.
59. The Reserve Bank also services the Finance
Minister in answering parliament questions relating to its domain. Most
importantly, the Governor appears before the Parliament’s Standing
Committee on Finance whenever summoned, which happens on the average
three to four times a year.
60. It has often struck me that for a public policy
institution with such a powerful mandate, these mechanisms for
accountability are both inadequate and unstructured. Perhaps, we should
institute an arrangement whereby the Governor goes before the Parliament
Standing Committee on Finance twice a year to present a report on the
Reserve Bank’s policies and outcomes and answers questions from the
members of the Committee. In my view, this will not only secure the
accountability structure but also protect the Reserve Bank from any
potential assaults on its autonomy.
61. I have dwelt a bit longer on this last challenge
of autonomy and accountability if only because we have not debated this
in the larger public domain as much as we should have. And to the Reserve
Bank staff, I want to say that they must be as zealous about rendering
accountability as they are about guarding its autonomy.
Thank God, the Reserve Bank Exists
62. A final thought on this issue of autonomy and
accountability. There has been a lot of media coverage on policy
differences between the government and the Reserve Bank. Gerard
Schroeder, the former German Chancellor, once said, “I am often
frustrated by the the Bundesbank. But thank God, it exists.” I do hope
Finance Minister Chidambaram will one day say, “I am often frustrated by
the Reserve Bank, so frustrated that I want to go for a walk, even if I
have to walk alone. But thank God, the Reserve Bank exists.”
Conclusion
63. Let me now conclude. Over the course of this
lecture, I have looked back to the last five years and indicated how that
period divided into three different phases of complex policy challenges.
I made an assessment of the Reserve Bank’s policy response and addressed
some of the criticism of that policy response at a broad level. Then, I looked
ahead to four challenges that the Reserve Bank must address in order to
remain a responsible, relevant and intellectually agile policy
institution.
64. It has been an enormous privilege for me to serve
the Reserve Bank of India
over the last five years. There were taxing times, testing times, anxious
times. But at all times, I moved on with the confidence that there is a
great institution behind me that will keep me in the right direction. I
have been deeply impressed by the professionalism, intellectual agility
and commitment of the staff and officers of the Reserve Bank. This is an
institution that has served the country with dignity and distinction and
will continue to set exacting standards for professional integrity and
work ethic.
Dharma
65. Nani Palkhivala said, “Dharma lives
in the hearts of public men; when it dies, no constitution, no law, no
amendment can save it.” If I can extend that thought a little, a nation
prospers only if its public institutions are guided by dharma. The Reserve Bank of India
tops the list of India’s
public institutions that are guided by Dharma and Dharma alone.
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