Former Reserve Bank Governor D Subbarao has said differences between the central bank and the government are not bad in themselves but contribute to improving public policies.
"Both the central government and the central bank are bound to have differences, but they are not bad in themselves. In fact I will go even further to say that having differences will contribute to improve public policies," he told PTI here.
He was replying to a query on whether the differences between him and the then Finance Minister P Chidambaram, besides Raghuram Rajan and current Finance Minister Arun Jaitleyaugured well for the Indian economy.
Subbarao, however, laid emphasis on having appropriate arrangements, protocols and conviction to manage differences between the two institutions so as to not tovitiate public debate and confuse financial markets.
"We should have appropriate arrangements, protocols and conviction for managing differences between the central government and the central bank. We should keep thedifferences behind closed doors so as to not vitiate public debate and not to confuse financial markets and financial sector professionals," he said.
Subbarao said, "Differences between the central bank and the government is not unique to India alone, such differences exist even in other countries too."
The differences stem from the fact that the former as an institution has a much more larger mandate than RBI, he said.
"It is possible that the government as an institution has much more larger mandate than RBI. Therefore they are bound to have differences," he said.
On formation of Monetary Policy Committee (MPC), Subbarao said there is no need to rehash the panel and it would only give a fillip to the autonomy of the RBI.
"There is a debate going on what should be the composition of the committee. I don't think there is any need to rehash that. The government has decided that it would have three plus three with the governor having the second vote."
"This will give a filip to the autonomy of RBI," he said.
Subbarao further said that by moving to MPC system, the
country is adopting best practices followed in the world.
"My view is that MPC is good. It is a tested practice around the world. By moving to MPC system we are adopting the best practices being adopted by best central banks around the world," he said.
Last month the government notified a law for setting up a six-member MPC which will decide the monetarypolicy.
TheCentre has not named members of the panel, which will havean equal number from both government and RBI.
The MPC will set interest rates by majority, with a casting vote for the governor in the event of a tie.
Of the six members, three will be from the RBI-- the Governor, who will be the ex-officio chairperson; a Deputy Governor and anExecutive Director.
The other three members will be appointed by the Government, on the recommendations of a search-cum-selection committee, which will be headed by the Cabinet Secretary.
