GoI 'vs' RBI, a polite policy debate
Economic Survey a readable government literature, had teasingly proposed in 2016 that a chunk of RBI capital could be freed up to recapitalise banks. Shortly after he left as CEA in 2018, Subramanian buttressed the concept in Economic & Political Weekly.
Most brushed it off as musings by a non-conformist economist who had differences with colleagues and peers. But few sensed it was a harbinger of a plan to use the central bank's excess capital: backed by a panel report, it paved the way for RBI to give generous dividends to GoI.
Almost a decade later, another CEA has sparked a debate on another esoteric issue rooted in the political economy. After this year's Survey (prepared under CEA's guidance) questioned the efficacy of India's inflation-targeting framework — under which RBI aims at 4% inflation with a tolerance band of ±2% — present CEA V Anantha Nageswaran, in an article, dwelled on how powerless RBI is in influencing 'headline inflation', which factors in changes in food and fuel prices over which it has no control.
Instead, he hinted, RBI should focus on 'core inflation', a narrower definition that excludes more volatile items like food and energy.
The inflation mandate to RBI is coded in law, and a shift from the inflation-targeting regime is possible only by amending the RBI Act. Though couched as 'personal views', few believed that Nageswaran would have broached the subject without a go-ahead from GoI that has set the ball rolling towards an objective that would take some time to achieve.
Artificial
