Former Chief Economic Adviser Arvind Subramaniam has called for institutional independence
As the Reserve Bank of India (RBI) raised its outlook for inflation for the current financial year to 6.7 per cent, up from its previous estimate of 5.7 per cent, former chief economic advisor Arvind Subramaniam said the central bank was late on rising prices. Responded from.
In an independent conversation with NDTV on issues related to the global economy, the importance of social harmony, India’s investment climate as well as the need for institutional independence, Mr Subramaniam, reacting to the RBI’s outlook on inflation, expressed disappointment that Although prices have been rising for almost three years, it was late to take measures to stop them, indicating “a certain loss of institutional independence”.
“The disappointing part is that it is not only that inflation has been high and the RBI has been late in responding to it, but it also smacks of some loss of institutional independence.” Mr Subramaniam said.
The former chief economic adviser said that RBI keeps inflation cap at 6 per cent, but aims at 4 per cent, so “much more action should have been taken. In economic parlance, RBI is like the Supreme Court. We are among these institutions.” Don’t want conflict, but we don’t want RBI government to expand.
“When inflation rises, the RBI is there to raise rates to control it. But he did not do so because the interest burden on the government increases. We call this fiscal dominance, which means that fiscal position dominates monetary policy. So the RBI is trying to do what the government wants to do instead of curtailing inflation,” explained Mr. Subramanian.
Emphasizing on the importance of institutional independence, he said that “if institutions are not going to be strong, it takes a toll on the broader investment climate, so the question is why foreign investors are choosing other countries like Vietnam etc.” (over India), becomes relevant”.
Asked whether the rate hike – which is impacting EMIs and loans and putting pressure on the common man – is going to continue, Mr Subramaniam said that although the RBI has to bring inflation down to 4 per cent level, Mr. is necessary, but he has forecast for it. Around 7 per cent (6.7 per cent) in the current financial year.
“Some global prices may calm down… but the RBI has to show that it has the will and the will to achieve (inflation control) as well as the independence,” he said. Some time, depending on external conditions.
Asked whether India could be an investment destination in the wake of China’s economic slowdown, Mr Subramaniam said India’s Atmanirbhar policy is proving to be a deterrent.
“We have a self-reliance policy, so India is not really an attractive place because we have become protectionist and have raised tariffs. So this policy is a problem in attracting investment that can serve the global market,” ex. Chief Economic Adviser said.
Mr. Subramaniam also blamed “arbitrariness in investment policy” as another impediment to India becoming an investment hub.
“To be fair to the government, it has started negotiating free trade agreements (FTAs).….but there is tension between such agreements and self-sufficiency. We have to drop this policy as FTAs need to reduce trade barriers. There is a need to overcome,” said the economist.
He said there was “too much arbitrariness” in investment policy as some companies favor others, which has turned foreign investors away.
“We need better centre-state relations along with independent institutions, stable rules and social harmony to attract investors. For the time being we are missing it,” said Mr. Subramanian.
Underlining the importance of cooperative federalism that it was visible when the Center formulated the Goods and Services Tax (GST) regime in consultation with the states, Mr Subramanian said that the spirit of consultation while framing agricultural laws was missing.
However, he said the Center alone should not be blamed, as the states were also guilty of indulging in “populism” or “mimic populism”.
“Here, the Center has to take the lead and create an atmosphere of trust. These are challenging times and both the Center and the states have to come together,” Mr. Subramaniam emphasized.
Highlighting the importance of social harmony in creating a conducive investment environment, the Economist said, “When you have prolonged social conflict, it weighs heavily on investment. Many countries tried to suppress such conflicts. but it catches on, as can be seen in Sri Lanka.
He said that when conflict (like Ukraine) becomes a weapon, it is the people who are most vulnerable.
“In such conflict we forget that if we have too many Indians working abroad who are vulnerable to armed interdependence. We have Indians in gulf countries and foreign governments may get angry if social harmony deteriorates in India. These are flammable things and can happen anytime and have massive repercussions,” warned Mr. Subramanian.
“That’s why we need social harmony to maintain stable relations for ourselves and with other countries in order to attract investments … That’s why social harmony and peace are very important,” he emphasized.
On the global economic scenario and its impact on the Indian economy as well as inflation, Mr. Subramaniam said that the ghost of global stagnation is still being witnessed at present.
“The World Bank has revised the forecast for the global economy and for this, less than 2 percent is considered a recession. We will not only have higher international prices of fuel and fertilisers, but also a global recession. This will be a double whammy for India, as we are not only a net importer of oil but will also face price shocks from the global economy. At the same time, exports will decline. So on both the growth as well as inflationary side, there are going to be setbacks for India,” he said in a nutshell.