Indian Central Bankers discuss crisis

RBI organised a Panel Discussion on ‘Challenges for the Central Banks’ on August 14, 2009 at Hyderabad. It had all whos and who of Indian Central Banking talking:

Apart from Dr. D. Subbarao, Governor, the distinguished panel comprised three former Governors of the Reserve Bank, viz., Shri M. Narasimham (currently Chairman, Administrative Staff College of India),   Dr. C. Rangarajan (currently Chairman, Economic Advisory Council to the Prime Minister) and Dr. Y.V. Reddy (currently Professor Emeritus of Economics, University of Hyderabad).  Dr. Shankar Acharya, (Member, Board of Governors and Honorary Professor at the ICRIER) moderated the panel discussion.

That is a wow list.

Earlier, only the the video of the event was put on the website. I was waiting for some kind of transcript as it gives more clarity. RBI has not added the transcript but brief views of speakers on its website.

The views are quite interesting:

  • Narasimham feels fiscal deficit is a main concerns for Indian economy. The banking regulation in pre- 1990s did not strengthen the banking sector but post -1990 efforts have led to resilience building. All the major regulatory agencies should be formed intoa  council with RBI as regulator of last resort. The crisis has also questioned the accepted wisdom on central bank independence (CBI) and transparency issues.
  • Rangarajan view price stability should be the main goal and RBI should have a soft inflation target to guide expectations. Both ITF and non-ITF Central Banks have faced difficulties oin this crisis and wrong to blame ITF alone
  • Reddy said financial stability was not formally defined for central banks. As central banks became independent they became cosy with fin market players and weakened regulatory oversight. Fin sector is footloose and seeks to gain from regulatory and tax arbitrage and light regulation would not work. The current stimulus measures are only boosting the excesses in the system.
  • Subbarao- highlights 4 challenges –
    1) fiscal and monetary authorities have responded in a coordinated manner to counter the crisis.
    2) need to define the mandate of central banks and reforming the regulatory structures.
    3)to get an optimum balance of liberalisation and regulation.
    4)conducting monetary policy in a globalised environment

There is a summary at the end of the views which is great.

Subbarao’s views are to be read most  carefully. After all his views will matter most now. His views on various economic policy issues in India have so much insights and practicality (see this as well). At his time of nomination, one widely held view was he is going to usher in financial sector and capital account liberalisation. Well, he surely has reservations on these issues now (don’t know whether the crisis changed it) and will at best be slow and steady.

We need more of these for sure.

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