Only available on StudyMode
  • Download(s): 59
  • Published: August 15, 2013
Read full document
Text Preview
In Diplomacy at Home, Govt Set to Repair Ties with RBI Move comes ahead of possible coordinated effort with regulators to stem sliding rupeeSHAJI VIKRAMAN MUMBAI 

    The government is moving to improve its relations with financial regulators, particularly the central bank, ahead of a possible coordinated effort to stem the rupee’s slide. There is concern that public airing of differences by policymakers is hurting management of the economy at a time the currency is plumbing new depths. One measure being considered is to appoint a senior official in the finance ministry to work closely with the regulators.  The initiative to fix the working relationship between the finance ministry and regulators comes amid a growing feeling at the top levels of the government and RBI that concerted action is needed to stop the slide of the rupee, which closed at 60.24 on Friday and briefly crossed 61 on Wednesday.  In New Delhi on Sunday, Finance Minister P Chidambaram presided over a meeting attended by some of India’s top economic policymakers, including RBI Governor Duvvuri Subbarao, Planning Commission Deputy Chairman Montek Singh Ahluwalia, PM’s Economic Advisor C Rangarajan and the finance ministry’s top bureaucrat Arvind Mayaram, to discuss steps to stabilise the weakening currency. Policy measures in the works could include more intense efforts to woo foreign capital, in particular sovereign wealth funds, which are perceived to be safer than other types of portfolio money, said a person briefed on the issue. The key macroeconomic challenge facing the government and RBI is to manage short-term external debt, amounting to $172 billion, due for repayment next year. India’s total forex reserves are now just under $285 billion. Preparing for Bad Times : The decision to appoint a point person to work with regulators was the outcome of recent meetings between the prime minister and finance minister. Given the prospect of a further slide in the rupee, the government wants to ensure a far more harmonious relationship between the finance ministry, RBI and the Securities and Exchange Board of India (Sebi) so that differences at the leadership level do not end up jeopardising plans for co-ordinated action to handle an external shock, said the person briefed on the developments.  In 2008, the finance ministry, RBI and Sebi worked closely after the global financial crisis to contain the fallout in the local markets and there is a widespread perception that a major crisis is around the corner that would call for a similar response. The government has identified a person who will be part of the finance ministry and work closely with RBI and other regulators, the person quoted earlier said. He spoke on condition of anonymity.  Differences over policies between the finance ministry and RBI, which regulates banks and sets interest rates, are hardly uncommon, but in the past they have rarely been aired in public. Senior government officials privately concede that over the last few years, there have been conflicts on some issues, notably interest rates. On a number of occasions, Chidambaram has expressed concern over RBI’s reluctance to cut interest rates. Earlier, during the tenure of Pranab Mukherjee, Subbarao had opposed the creation of a statutory Financial Stability and Development Council, or FSDC. Relations between the central bank, Sebi and the finance ministry deteriorated during the phase when Mukherjee headed the ministry between 2009 and 2011 and though it is not half as bad it was back then, there is much to be ironed out, officials say. Differences over policies between finance ministry & RBI are hardly uncommon, but in the past they have rarely been aired in public.

Mayaram, Rajan in Fray For RBI Governor Post
A top bureaucrat and a celebrated economist, both charged with turning the economy around and who occupy rooms next to each other in the North Block, have emerged as the strongest contender to head RBI. That is if...
tracking img