The Hindu Business Line : Reddy highlights dilemma of monetary and public policy

Mumbai, Sept. 5 At his farewell meet with the Mumbai media on Thursday evening, the outgoing Governor of the Reserve Bank of India, Dr Y.V. Reddy, made it clear that he would not talk policy or comment on the future but speak “analytically.”

In reply to the questions that flew thick and fast from an appreciative press, the former governor summed up his experience crisply and with clarity, an experience he termed gratifying because he learnt so much, leaving the audience merrily chuckling when he wondered if his “education” had cost the government dear.

True to form, Dr Reddy pointed to inflation control as the main challenge of his term, given the pressures of high growth. That motif wove his “ analyses” of the central questions that will haunt the central bank and governments for years to come.

To a question on the independence of the RBI, he firmly struck out at the “textbook, formal notion of independence” in a country like India where public policy was bound to be problematic, enmeshed in a dynamic equation with monetary policy.

Uneasy equation

Yet an aftertaste of regret lingered at the idea that the equation had become an uneasy one, especially for the transmission of monetary policy and its utility for inflation control.

Over the next hour or so he came back to the theme, analytically of course, of the overarching influence of public policy on the central bank’s conduct, posing it alternatively as a challenge, a dilemma that had to be lived with.

Crisis points

On one occasion, the independent economist-banker, singed at the edges by that “public policy”, counted off three crisis points for the future: the fisc, the physical infrastructure and good governance.

He was echoing the dangers of government overspending on private investments that the annual report had just diagnosed.

Pragmatism always took over and Dr. Reddy, just an hour fresh into a time in which he need not ask for leave to go where he wanted, as he jocularly remarked, stressed the virtues of the duality of public policy and central bank’s operational autonomy. But a man so central to the most rocking period of the Indian economy, can hardly stop himself from reminding the audience that hasn’t noticed it, of his initiatives in 2004 when the corporate sector was allowed to hunt for “real economy ‘ acquisitions.

None picked up that thread, the moment died when someone asked about P-notes. But the warm glow will stay a while; when asked how he would look back on his tenure, he begged off. Too early for that, he said; he had vacated office just an hour earlier.

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