Business Economics & Services Team
Is This a War of Attrition Between FM and RBI Governor?
A day after the union finance minister Arun Jaitley reported to have told a gathering of industrialists and bureaucrats at a meeting to chart out the future course of the grand Make in India program that the higher interest rate was a stumbling block to pep up the manufacturing sector, he retracted from that in his twitter. The sum and substance of his tweet was that the media had read too much into his generic comment that a lower interest rate was necessary to kick start the economy. His explanation can mean that at this present juncture, what is generally good for all economies, need not necessary be good for India.
Is he trying hard to distance from his statement? Jaitley may not be an economist in strict sense since he comes from a profession of lawyering. His reputation as a lawyer is well known and widely recognized. Also, as an astute politician, he has made his mark so much so that he is the most powerful and incisive spokesperson in the NDA today. Also, the journalists present at the high profile meeting to cover are not the amateurs, cub reporters or stringers. They are hard core financial journalists, who have been covering Jaitley and the finance ministry since many of the headline stories come out from the finance ministry. Can they commit an error of this magnitude of misreading the finance minister?
This is not the first time that the erudite finance minister had made such a statement. More than a month ago before the review of the monetary policy announced on 2nd December 2014 also made such a statement. Is Mr Jaitley blowing hot and cold? Possible because he has to gravitate towards the powerful industry lobby, who has been clamoring for a rate cut, as if that is the panacea for all economic ills in the country. A shrewd lawyer and politician of Jaitley's reputation can easily disrob the veil of the rationale put forward by industry for rate cut.
As the drama unfolds, one should give the due credit to the present RBI Governor for withstanding the pressure from the government. Admittedly, he has a few advantages. One, he does not have a bully finance minister to handle. That way, there can be traces of arrogance in the present incumbent, he is far more refined and respect the delicate domains of fiscal and monetary policy. While fiscal calibrations are his, he tends to accept the authority of the RBI governor over the monetary policy. That is a good augury.
The second advantage that the RBI Governor enjoying is his own background. His impeccable background and academic elan have come handy in dealing with the pressure exerted by the finance ministry. For long, barring a few exceptions like Dr Manmohan Singh and Dr Bimal Jalan, we had only senor bureaucrats as the RBI governors. The bureaucracy has been taught to call Sir to people who are one day senior to them. That does not take away the circumspect stands taken by some earlier governors like Dr Reddy and Dr Subba Rao, who did not yield to the bullying tactics and stood their ground.
The third advantage is connected with the second. Being a part of the officialdom, both his predecessors-Dr Reddy and Dr Rao were hamstrung what they have been taught at Mussorie- that a bureaucrat should work in the background and the public glare should be on the elected representatives in a parliamentary system of government. That way they shied away from the media nor they have tried obtusely to create direct contacts with the media. They had met media when it was important to meet them to announce the RBI stands and policies. In these days, one can easily make out that the RBI governor is getting wider exposure ever enjoyed by any of his predecessors. I suspect even more than the finance minister. It may be incidental or the governor would have made this as a policy to hob know with the media. If he has done so there is nothing wrong in that.
I have a feeling that there is a well laid out scheme by the RBI to counter some of the opinions expressed by industry and industry lobby organizations. Along with the clamoring for rate cuts, we get to know that the industry off take of credit has gone up somewhat appreciably negating the claim that higher rate is affecting credit off take. Is it a tit for tat? if it so, there is nothing wrong in that.
