The RBI governor may have been a disaster during his 5 year tenure. But can he alone be blamed for the rot ?
As RBI Governor D. Subbarao unveils today the first quarterly policy review for the current financial year, one wonders if there is much for him to show. Pummelled by a precipitous fall in the value of the rupee, which touched a horrifying low of 61.20 to a dollar earlier this month, the Governor and the Union Government have embarked on something like necromancy, or what witch doctors do to make a corpse stand up.
Since last week, an asphyxiating squeeze on credit has come into effect without any change in the policy rate. Instead the central bank has put an array of quantitative restrictions on rates at which banks can access money from it. As a result, the bank-to-bank borrowing cost has shot up to more than 10 per cent, against 7 per cent a while ago. The Finance Minister has said the monetary control is temporary. Even the Prime Minister echoed similar sentiments. But the RBI Governor is ominously silent till now. Continuation of this credit squeeze is something akin to holding the price of chicken by putting away all the birds in the coop. But controlling supply of currency has its own risks. It may hurt growth for a long time—way beyond the 2014 election where the calculation of everyone in authority tends to stop. It may be like the bad surgeon’s classic post-operation utterance: “The operation is successful but the patient is dead”.