Reserve Bank of India Governor Raghuram Rajan’s job will be safe if the opposition Bharatiya Janata Party comes to power in elections ending May 16, 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 yesterday, 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 this month dismissed talk of any differences with the BJP as “speculation” that was invented by the press.
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.
“The Reserve Bank 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 percent 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 April 1 after raising it by 75 basis points since September, and said further tightening isn’t anticipated if price gains stay on path to hit 8 percent in January 2015 and 6 percent a year later.
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.
Government pressure on Rajan to change his policy focus “would be perceived as shooting themselves in the foot because Rajan has been the source of credibility in India and you don’t want to destroy that,” said Benoit Anne, London-based head of emerging-market strategy at Societe Generale SA. “The best thing that they can do is to leave him alone.”
The 1934 Reserve Bank of India Act says the federal 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, Chakravarthy Rangarajan, a former RBI governor who is chairman of Prime Minister Manmohan Singh Economic Advisory Council, said in an Oct. 9 interview.
India’s rupee has been the best performer among emerging markets since hitting an all-time low on Aug. 28, surging 14 percent in that time as Rajan offered discounted swaps for dollars raised by banks and on optimism that a Modi government will boost economic growth. The benchmark S&P BSE Sensex has climbed 15 percent since Sept. 13, when the BJP named Modi as its prime minister candidate.
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 percent of gross domestic product in the 2010 fiscal year. It will narrow to 4.1 percent of gross domestic product by March 31, 2015 from an estimated 4.6 percent in the previous fiscal year, lower than an earlier target of 4.8 percent, Finance Minister Palaniappan Chidambaram said in February.
India’s subsidy bill rose fivefold in the past decade under Singh’s ruling Congress party to 2.6 trillion rupees ($43 billion) a year. In the same period, the Indian economy has only doubled in size, according to the International Monetary Fund.
India has seen record turnout averaging 66 percent 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 May 12, with all votes counted on May 16.