What’s the job like for today’s RBI Guv? Subbarao says balancing growth & inflation less testing now

In contrast, he said, the fear in 2012 was one of possible stagflation, where growth was falling and inflation was high.

File photo of D Subbarao | Commons

New Delhi: The difficulty of balancing economic growth and inflation is less acute today since growth currently is “quite comfortable”, former RBI Governor D. Subbarao said, speaking about the tension between the central bank and the government on how to balance these key aspects of the economy.

During an interview with ThePrint, Subbarao, who was RBI Governor between September 2008 and September 2013, mentioned his differences with two full-time finance ministers he worked with — P. Chidambaram and Pranab Mukherjee.

Historically, the government and the Reserve Bank of India (RBI) approached the growth-versus-inflation debate from opposite directions. While governments typically focus on raising growth and are willing to let inflation inch up, the central bank is more interested in keeping inflation down, even if that comes at the expense of growth.

This was the case while he was the governor too, Subbarao said.

“The government was coming with a different world view of the balance between growth and inflation and the RBI, with its co-mandate of maintaining price stability, was viewing the growth-inflation balance differently,” he explained.

However, while Subbarao said he had differences with both finance ministers over it, he emphasised there was never any acrimony.

Subbarao, in fact, worked with three finance ministers, although the third — then prime minister Manmohan Singh — was only an interim finance minister for a short period.

“I had differences with both Mr Pranab Mukherjee and Mr Chidambaram,” Subbarao recounted. “I had reservations against the government’s view. And we saw the growth-inflation balance differently. There was never any acrimony though. Both Mr Mukherjee and Mr Chidambaram had regard for the Reserve Bank of India. Both of them treated me courteously.”

He went on to say that the current context was very different from the period when he was governor.

“This growth-inflation tension plays out differently in different contexts,” he said. “For example, in 2012 when I was governor, there was concern about stagflation because growth was going down and inflation remained stubborn.”

“Today, even as the RBI remains focussed on inflation, growth is quite comfortable,” he noted. “We are clocking growth of 7-plus percent or just below that. So the challenge of managing this tension is less acute today.”

He added that different macroeconomic contexts should not be compared, even though one could learn from the past.

(Edited by Tikli Basu)