Subbarao blames Centre for crisis

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Mumbai: RBI governor Dr D. Subbarao on Thursday defended his monetary policy actions on inflation, growth and the rupee and said that to blame his policies would be “inaccurate, unfair, and importantly, misleading as a policy lesson.”
In his last public lecture at the Tenth Nani A. Palkhivala Memorial Lecture, before he demits office on September 4, Dr Subbarao cautioned the government against attributing the “ferocity of depreciation of the rupee” to the tapering of the QE by the US Fed alone. He said, “We will go astray both in the diagnosis and remedy if we do not acknowledge that the root cause of the problem is domestic structural factors.”
While admitting to some impact of tight monetary policy on growth he said “India’s economic activity slowed owing to a host of supply side constraints and governance issues, clearly beyond the purview of the Reserve Bank. If the Reserve Bank’s repo rate was the only factor inhibiting growth, growth should have responded to our rate cuts of 1.25 per cent between April 2012 and May 2013 and CRR cut of 2 per cent and open market operations (OMOs) of `1.5 trillion last year.”
He said the root of the depreciation of the rupee was the unsustainable current account deficit (CAD) for the fourth year and it could be financed only because of easy global liquidity. He said the government did not use this opportunity to address the structural factors that could bring down the CAD to a sustainable level.
That is why “We have made ourselves vulnerable to sudden stop and exit of capital flows driven by global sentiment; the eventual cost of adjustment too went up sharply.” India’s CAD he said was because of supply constraints that impact both growth and external trade and “this can only be resolved by structural solutions.”