New Delhi: Prime Minister Manmohan Singh has called for evolving a fresh thinking on RBI's monetary policy in a globalised economy and dealing with the constraints of its macro economic policies.
"The time has come to look at the possibilities and limitations of the monetary policy in a globalised economy and dealing with the constraints of the macro economic problems. That is where a fresh thinking is called for," he said.
"I think Raghuram Rajan (Governor designate) will evolve a policy with the help of professional persons for a national consensus if we have to carry on with implementing social and economic changes in a complex economy, Singh said.
The remarks assume significance in the context of the raging debate over RBI's hawkish policy stance on checking inflation vis a vis government priority on growth.
Singh was speaking after releasing "RBI History - Looking Back and Looking Ahead", the fourth volume of 78-year-old central bank's history, at a simple function at his Race Course residence.
The subject also came up in the speech of outgoing RBI Governor Duvvuri Subbarao, who in his welcome address, said the debate on growth-inflation balance has been clouded by some "oversimplififcations".
The function was attended by a galaxy of personalities including former RBI Governors--Amitabha Ghosh, C Rangarajan, Bimal Jalan, Y V Reddy--present and former deputy governors and Ministers of State for Finance Namo Narain Meena and J D Seelam.
The Prime Minister, himself a Governor between 1982 and 1985, recalled that when he was chosen to head the central bank, he had no idea of what a monetary policy was.
He said he had then asked noted economist Prof. Sukhamoy Chakravarti to head a committee to go into what a monetary policy should do and that report was a big help to him.
Singh expressed the hope that Governor-designate Raghuram Rajan, who was also present, will build on his predecessor's work to chart a new course of action in the very difficult period of economy now.
"Rajan is a distinguished economist of world repute and I wish him all the best in RBI under his leadership," he said.
The prime minister said the RBI has done the country proud in shaping the monetary and credit policies and also influencing the line of credit in rural areas. "RBI has served the country with distinction. But I would say the best is yet to come," he added.
Singh also complimented Subbarao saying he had served the country and RBI well. On growth-inflation balance, Subbarao said the first and possibly the most important debate was about balancing between growth and inflation in the policy context.
"This is a balance that both governments and central banks struggle with. In my view, this debate has been clouded by some oversimplifications.
"One such oversimplification is to say that governments are for growth and central banks are for price stability. Another oversimplification is to assert that there is a tension between growth and inflation, and that one necessarily has to play the trade-off between growth and inflation in policy making," he said.
Subbarao said RBI's monetary policy aimed at three objectives-price stability, growth and financial stability.
"To contend that the Reserve Bank is obsessed with inflation, oblivious to growth concerns, I think, is both inaccurate and unfair.
"The Reserve Bank is committed to inflation control, not because it does not care for growth, but because it does care for growth. There is any amount of evidence to show that an evidence to show that an environment of low and stable inflation is a necessary precondition for sustainable growth. How history will evaluate the Reserve Bank on its balanced commitment to growth and inflation is an interesting conjecture," the outgoing Governor said.
Referring to another big debate now in India and around the world on the fiscal dominance of monetary policy, he said in India the structural reforms piloted by Manmohan Singh as finance minister and Governors Rangarajan and Reddy and Montek Singh Ahluwalia as Finance Secretary had helped establish the autonomy of monetary policy free of fiscal policy compulsions.