Letters: The FinMin-RBI equation

This refers to Rajiv Shastri's article "Rajan, Modi & the supply side conundrum" (June 3). A good understanding and relationship between the government and the Reserve Bank of India (RBI) governor is a prerequisite for the success of our economy. There should be clarity about their respective objectives. The finance minister is a generalist who is assisted by a team of specialists and, therefore, should treat advice from RBI with an open mind. Secondly, the domains of the specialists and the finance ministry should be unambiguous (monetary policy for RBI and fiscal policy for the government). Lastly, the leadership style of the minister should promote synergy rather than hostility between him and RBI.

The uneasy relationship between P Chidambaram and his two eminent RBI heads, Y V Reddy and D Subbarao, arose due to the lack of these basics. Chidambaram never forgot that he was a specialist in monetary management also and looked upon RBI's way of controlling inflation as RBI-centric. Unable to check supply-side distortions, Chidambaram expected RBI to lower policy rates to help him out of the mess. His leadership style oozed arrogance of knowledge that created a hierarchical distance. Let us hope Arun Jaitley will be able to create a better relationship with RBI.

Y G Chouksey Pune

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