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New Delhi: Reserve Bank of India (RBI) governor Raghuram Rajan’s job will be safe if the opposition Bharatiya Janata Party (BJP) comes to power in elections ending 16 May, Piyush Goyal, the organization’s treasurer, said in an interview.

“Just because he’s been appointed by someone else doesn’t mean we have an agenda to remove him," Goyal, a lawmaker who is on the standing committee on finance, said in New Delhi on Sunday, referring to Rajan. “No government can dictate to the central bank. It’s an autonomous body and he holds a constitutional position. We don’t have any likes or dislikes."

Most polls show Narendra Modi’s BJP winning enough seats to form a coalition government as voters look to end 10 years of Congress party rule amid the slowest economic growth in a decade. Rajan, a former chief economist at the International Monetary Fund (IMF), has raised the benchmark interest rate by 75 basis points since Congress appointed him to head the central bank in September.

Goyal said the BJP has zero tolerance for inflation and would move to prevent hoarding of fresh produce, which has exacerbated food prices during supply shortages. It would seek a price stabilization fund to support farmers during supply gluts and procure imports when there are shortages, he said, without saying how much it would cost.

‘Lousily managed’

“RBI is fulfilling its duty to make an effort to reduce inflation, but sadly the government has been so lousily managed in the last few years," Goyal said. “A government led by Modi will repress the concerns of any central bank leader."

India’s consumer-price inflation quickened in March for the first time in four months to 8.31% from a year earlier, keeping pressure on the central bank to keep interest rates elevated. Rajan left the repurchase rate unchanged in the last review on 1 April and said further tightening isn’t anticipated if price gains stay on path to hit 8% in January 2015 and 6% a year later.

Rajan dismissed talk of any differences with the BJP as speculation that was invented by the press at a panel discussion in Washington DC this month organized by the Brookings Institution.

Goyal distanced himself from comments he made in February to the Economic Times newspaper, which quoted him saying that governor Rajan is only aggravating the problems and making it worse by increasing interest rates. Goyal said he meant that RBI governors under Congress rule have been forced to increase rates due to ineffective policy implementation.

BJP worries

“With a change of guard, there’s worry that the BJP will think about strong-arming to get their policies in place," Madan Sabnavis, chief economist at Mumbai-based Credit Analysis and Research Ltd. That would be a disaster from the central bank’s perspective.

The 1934 Reserve Bank of India Act says the central government may give direction to the central bank on what it considers the public interest. The provision has never been used and doesn’t mention monetary policy, C. Rangarajan, a former RBI governor who is chairman of Prime Minister Manmohan Singh Economic Advisory Council, said in a 9 October interview.

India’s rupee has been the best performer among emerging markets since hitting an all-time low on 28 August, surging 14% in that time partly on optimism that a Modi government will boost economic growth. The benchmark BSE Sensex has climbed 15% since 13 September, when the BJP named Modi as its prime minister candidate.

Fiscal deficit

Reducing the fiscal deficit and fighting corruption would give space for interest rates to come down, Goyal said.

The ruling Congress party saw the fiscal deficit rise to a peak of 6.5% of gross domestic product (GDP) in the 2010 fiscal year. It will narrow to 4.1% of GDP by 31 March 2015 from an estimated 4.6% the previous fiscal year, lower than an earlier target of 4.8%, finance minister P. Chidambaram said in February.

India’s subsidy bill rose fivefold in the past decade under Singh’s ruling Congress party to 2.6 trillion a year. In the same period, the Indian economy has only doubled in size, according to the International Monetary Fund (IMF).

India has seen record turnout averaging 66% through six of nine rounds of voting, according to the Election Commission of India. More than two-thirds of seats among the 543 up for grabs have already been decided. The last round of voting will take place on 12 May, with all votes counted on 16 May. Bloomberg

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