ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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New Target of Vitriol

The attack against the Reserve Bank governor obfuscates issues facing the Indian economy.

The defining feature of the present regime is not effective policymaking, as was promised, but the vitriol deployed by its parliamentarians and its supporters against those who do not fall in line. The Governor of the Reserve Bank of India (RBI), Raghuram Rajan, is the latest to be labelled as an “anti-national.” The Bharatiya Janata Party’s (BJP) Subramanian Swamy, immediately after being appointed to the Rajya Sabha, proceeded to vilify Rajan, accusing him of sabotaging economic growth through unfavourable interest rates and leaking sensitive information. Consequently, there has been intense media speculation about whether the government will extend Rajan’s three-year term as governor when it ends in September. While Finance Minister Arun Jaitley said, rather predictably, that he “did not approve of any of these comments being made by anyone as far as the personality is concerned” and despite Prime Minister Narendra Modi’s attempts to play down the controversy, it is clear that the speculation relating to extending the RBI governor’s term has been fuelled by the ruling party.

There is routine tension between the government and the RBI over the setting of interest rates. The government wants the apex monetary authority to push interest rates lower to induce fresh investment, while the RBI refuses to comply, ostensibly for price stability. Just over 10 months ago, the government made a clear attempt to curtail the RBI governor’s veto powers on the seven-member committee for monetary policy in the July 2015 revised draft of the Indian Financial Code. Further, over the years, governments have taken a far more lenient view on liberalising the capital account, while the RBI has had a different opinion.

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