The Reserve Bank of India (RBI) is concerned about price stability as well as growth, and it would be “inaccurate and unfair” to conclude that the central bank is obsessed with inflation, Governor Duvvuri Subbarao said Saturday.
“The Reserve Bank’s monetary policy aims at three objectives – price stability, growth and financial stability. To contend that the Reserve Bank is obsessed with inflation, oblivious to growth concerns, I think, is both inaccurate and unfair,” Subbarao said.
“The Reserve Bank is committed to inflation control, not because it does not care for growth, but because it does care for growth,” he added.
Subbarao’s comments came in the backdrop of growing pressure on the RBI from India Inc as well as from a section of the government to cut policy rates to help revive economic growth that has slumped to a decade low.
The governor said the debate over the trade-off between growth and inflation was a result of “oversimplifications” of the central bank’s role.
“This debate has been clouded by some oversimplifications. One such oversimplification is to say that governments are for growth and central banks are for price stability. Another oversimplification is to assert that there is a tension between growth and inflation, and that one necessarily has to play the trade-off between growth and inflation in policy making,” he said.
Subbarao was speaking here at a function at Prime Minister Manmohan Singh’s official Race Course Road residence organised to release of “Reserve Bank of India’s History Volume IV”.
The prime minister released the book written under the guidance of an advisory committee chaired by former RBI governor Bimal Jalan. The members of the committee were Subir Gokarn and Rakesh Mohan, both former deputy governors, A. Vasudevan, former executive director, Amitava Bose of Indian Institute of Management, Kolkata, and Dilip Nachane of Indira Gandhi Institute of Development Research, Mumbai.
Subbarao, whose term at the RBI ends Sep 4, emphasised that controlling inflation was necessary to revive growth.
“There is any amount of evidence to show that an environment of low and stable inflation is a necessary precondition for sustainable growth. How history will evaluate the Reserve Bank on its balanced commitment to growth and inflation is an interesting conjecture,” he said.