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> Dr. Reddy calls a spade a spade |
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Dr. Reddy calls a spade a spade
posted by
Vivek Sharma
28 May 2008, 23:15
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labels: government, economy
Until liberalisation in the early nineties, the RBI was perceived as some kind of a minor government department. True to that image, the job of RBI governor was not as high profile as it is now and media attention was minimal. The governor had his signature on all notes, except the one rupee note, but hardly anyone reads what is written on currency notes.
Given the central bank’s rather meek stature, RBI governors hardly ever differed in public with the big men in Delhi over policy matters. Monetary policy was always seen as being directed by North Block and the governor’s job was to announce it.
Over the last decade and more, the RBI has slowly gained stature as an independent institution and not just the Mumbai outpost of North Block. Even then, RBI governors hardly ever differed with government positions on economic policy or fiscal management – at least in public.
So, when RBI governor Y V Reddy cautioned the government on the worsening fiscal deficit, more than a few eyebrows were raised. He didn’t stop there and went on to emphasise that our fiscal deficit is one of the highest in the world.
Yes, you read it right, one of the highest. The UPA government has been touting the improvement in fiscal deficit as one of its biggest achievements. Now, someone as credible as the RBI governor is disputing that claim. Coming right after all the flak they took for bungling on the inflation front, this would doubly hurt the mandarins of North Block. Of course, Dr. Reddy has only stated in public what most others will accept as a fact in private.
Unfortunately, the one person who must acknowledge that the fisc is in a bad shape will not do it. When the finance minister reeled off statistics showing declining fiscal deficit year after year, in budget after budget, he was hiding some of the big ticket items. Like the oil bond scheme which grants the government a holiday from expensing out oil subsidies, expected to cross over Rs2.5 lakh crore this financial year. Suffice to say, the finance manager has been more innovative than most corporate financial engineers who dream up off-balance sheet vehicles to keep shady businesses from the investors’ eye.
It is still not quite clear what emboldened the RBI governor, whose term ends later this year, to be so harsh on the government. Maybe, he knows by now that an extension is unlikely to come by.
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