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Updated: June 4, 2013 16:43 IST

Subbarao, a reluctant warrior on inflation

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RBI Governor D. Subbarao.
PTI RBI Governor D. Subbarao.

Justifying his priority to tackling inflation, the RBI Governor on Tuesday said he had to listen to the 'silent voices' of millions of poor amid the vociferous demand from several quarters for a cut in interest rates to boost sagging industrial production.

Mr. Subbarao said it was equally important to save the poor from the impact of high inflation which was nothing but “regressive tax.”

“There are hundreds of millions of people in the country who are affected by inflation. For poor people, inflation is regressive tax, it hurts poor people more than it hurts people like us. And we need to hear that silent voices,” he said while responding to a question on the rate cut demands of India Inc.

Does he consider being termed an “inflation warrior” a compliment or criticism, the RBI Governor was asked.

“I do not take that as a compliment,” reacted Mr. Subbarao during an interview to PTI.

But he went on to add that if people had said the Governor and the RBI had got the mix between growth and inflation judiciously and drawn a right balance “I would take it as a compliment”.

Mr. Subbarao said if people thought that he was an inflation warrior to imply that he was targeting inflation regardless of all other concerns, then that would be misreading of RBI’s policy calculations.

He said if inflation was close to double digit then the RBI needed to be inflation warriors. “People say that (tight monetary policy) is affecting growth. Possibly it is affecting growth because you cannot bring down inflation without sacrificing some growth,” he said.

“But that sacrifice is only in the short term. In the medium term, low and steady inflation secures our growth. Only in such a situation, investors and consumer can make informed decision,” he added.

“RBI has to be a sensitive institution in drawing the balance between growth and inflation. We need to listen not only the voice that gets heard but also the voice that does not get heard,” he said.

Moreover, Mr. Subbarao explained it was also important to protect the savings of individual depositors from inflation. The RBI chief said that it is not possible to rein in inflation without sacrificing growth.

Mr. Subbarao asserted that the central bank is sensitive to growth concerns but not at the cost of higher inflation.

Maintaining that it is comfortable with 5 per cent inflation, he said, RBI takes into account the growth-inflation balance and that is why there has been easing of interest rate since January last year. Mr. Subbarao said there was need to bring inflation to 5 per cent saying the relationship between growth and inflation is non-linear.

“There is a threshold level of inflation. If inflation is above that level, it is inimical to growth. If inflation is below that level it is possible that you can bargain for higher growth, tolerating a little higher inflation,” he said.

Admitting that the high Current Account Deficit (CAD) level is a matter of concern, he said there was need to boost exports and bring down dead-weight imports like gold.

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