Welcome extension

Dr D. Subbarao has got a two-year extension of his term as Governor of the Reserve Bank of India. This continuity spells good news for an economy that has increasingly been feeling the strain of policy paralysis in a beleaguered government that is fighting a new crisis every passing day. The world economy has not yet recovered from the global crisis of 2008. But another set of challenges is already on its way, given the panic across the world following the recent downgrading of US debt by rating agency Standard & Poor's. These are volatile times in which the macro-economy needs to be steered by a safe pair of hands — which it has in Dr Subbarao. Market participants and observers, both here and abroad, will, no doubt, see it as a confidence-building measure for the economy.

Dr Subbarao, when he took over three years ago, stepped into the rather large shoes of Dr Reddy.  Many doubted if he would measure up — especially because, by then, Dr Reddy had developed a halo as a saviour of the Indian economy, when the rest of the world was in crisis.  Dr Subbarao has since proved his mettle after his baptism by fire during the global crisis of 2008.  Over the past three years he had to first unwind a tight monetary policy and infuse phenomenal amounts of liquidity.  Equally, as the economy began recovering and inflation pressures began to mount, he has had to wind the tape back and tighten monetary levers during the last year. He also increased the frequency of policy actions to about 45 days so as to impart a measure of gradualism. Through this difficult period, he has been consistently communicating the reasoning behind various decisions and left the markets with a reasonably clear idea of what they could expect.  There were occasional hiccups when his inflation-fighting credentials were questioned. And some wondered whether he could stand up to the government on reining in the fisc or on matters of RBI autonomy, especially in view of his earlier stint as Finance Secretary.

The record would probably show that he has passed the test, in his own simple style. He has tried to improve the conduct of monetary policy, bring in more transparency and communication, and demystify the office of Governor — all goals he set for himself at the start of his first term. The decision to retain Dr Subbarao at the central bank's helm for another two years is, therefore, very welcome, although one wishes the government would make up its mind on top positions far sooner than it did in this case, to avoid unnecessary suspense in these uncertain times. The remaining part of his tenure will, no doubt, be devoted to improving on his record besides handling the principal challenge of controlling inflation without choking growth.

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