Rajan dismisses tension with BJP

RBI Governor praises Finance Minister P Chidambaram for 'economic turnaround'

Reserve Bank of India (RBI) Governor Raghuram Rajan dismissed any rift with the Bharatiya Janata Party (BJP). A section of the press speculated tension between the governor and the main opposition party, which is now seen as the front runner by many opinion polls to form the next government after the general elections.

During his interaction at the Brookings Institute, Washington, the former chief economist of International Monetary Fund said, “I haven't had any discussion with the new government. I think this is all press-invented differences and I think it should be seen as such speculation rather than any actual differences.”

Rajan delivered a lecture on the topic, “Competitive Monetary Easing: Is it yesterday once more?” at a high-profile event at the prestigious institution.

Rajan also credited Finance Minister P Chidambaram for taking steps to revive the economy.

Some second-rung leaders of the BJP had questioned the central bank’s monetary policy tightening measures at a time the economy registered its slowest growth in a decade the last financial year. After taking charge in September, Rajan raised interest rate by 75 bps to eight per cent to tackle inflation, which has been sticky for the past two years. RBI, however, pressed the paused button in the last policy, but warned the inflation pressure could resurface.

 

Moreover, these leaders also opposed granting of fresh bank licence before the election and said Rajan should wait till the new government is formed. Notwithstanding the demand from the main opposition political party, RBI issued two fresh bank licences last week.

 

Rajan, who was the chief economic advisor of the finance minister before he became governor, is widely credited for tackling the currency crisis that the country was facing when he took charge of the central bank. Days after the rupee touched its historic low, Rajan was inducted as the RBI governor. He unleashed several steps to encourage inflows which not only helped the rupee to appreciate and also aided in building of foreign exchange reserves. 

 

During his interaction at the Brookings Institute, Rajan, also credited the finance minister P Chidmabaram for taking steps to revive the economy.

 

"The success belongs entirely to the Finance Minister and not to the Reserve Bank of India...... we work together and I think one of the benefits is that there is a greater sense of comfort on fiscal consolidation," 

 

The government also took various measures to narrow the current account deficit like import curbs mainly on non-essential items like gold. The government also squeezed expenditure to meet its fiscal deficit target of 4.8 per cent in 2013-14 though several experts have questioned the manner in which the deficit was cut down.