Not right to compare current economic situation to 1991: PM

Prime minister Manmohan Singh today released the fourth volume of the History of the RBI covering 1981-1997. Manmohan Singh served as the RBI governor from 1983-85. He also served as the finance minister between 1991 and 1996. Both the prime minister and the current RBI governor D Subbarao spoke at the function, reports CNBC-TV18's Latha Venkatesh.

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The event was also graced by former governors such as YV Reddy, C Rangarajan, Dr Bimal Jalan, who had been the advisor to the committee that wrote the fourth volume of the history, among others. The entire top brass of RBI was present. Namo Narain Meena, deputy minister for finance, and everybody who has been associated with the RBI, were present. Raghuram Rajan, the new RBI governor designate, Montek Singh Ahluwalia and former executive directors, among others, were also in attendance.
On current criticism that RBI only cares about inflation and the government cares for growth, Subbarao says it would not be right to say that. He says because the RBI cares for growth, it cares about a low and steady inflation, which is one of the best inputs for growth.
He congratulated Dr Manmonhan Singh, for rendering RBI monetary policy independent. This was actually Dr Jalan’s point, who spoke on the occasion. He says Manmohan Singh as the RBI governor and the finance minister liberated the monetary policy from the strings of fiscal policy.
Fiscal policy was dominant till 1981. After 1982, following the Sukhamoy Chakraborty report, RBI gained more independence in pursuit of CRR and SLR guidelines. As finance minister in 1991, along with C Rangarajan, who was the then RBI governor, he supervised the liberalization of interest rates from the strings of the government and the RBI and then the interest rates were set by commercial banks. The foreign exchange market was also liberalised.
When asked about the current situation looking like 1991, in terms of Balance of Payment and the current account deficit, PM Manmohan Singh says India is in a far more resilient position now. In 1991, India had reserves to cover only 15 days of imports, whereas now we have reserves to cover seven and a half months of imports.
He also points out, in 1991, both the exchange rate and interest rate were set by the Reserve Bank and the government. Now both these are  market determined.
He says, if India were to look at gold as a capital asset, then current account deficit doesn’t look like a big worry. It falls if the gold component is taken out.
Dr Singh lauded the RBI by saying it has conducted itself with distinction. But going forward, maybe it should revisit the Sukhamoy Chakraborty report, which gave the foundation of monetary policy independence, maybe those tenets need to be revisited in a new world.