The controversy surrounding the independence of the Reserve Bank sharpened on Saturday, with a former Finance Ministry consultant telling the Financial Times that Governor Raghuram Rajan was doing Prime Minister Narendra Modi’s bidding in keeping the rupee strong.
An FT article, “India moves to reduce central bank powers on interest rates”, quoted the former consultant, currently Professor at the Finance Ministry’s think tank, National Institute for Public Finance and Policy, Ajay Shah, as saying that Dr Rajan was conducting the “most intensive exchange rate policy in the past 20 years”.
PM’s biddingThe article went on to say that according to Dr. Shah, the Governor was doing so at the behest of the Prime Minister.
According to the article, Prof. Shah suggested that the Governor was “doing the bidding of Prime Minister Narendra Modi in keeping the rupee strong”. It quoted Dr. Shah as saying: “Raghu [Governor Raghuram] is doing whatever the PM tells him to do”.
The BJP, a nationalist party, has traditionally favoured a strong rupee, though Union Finance Minister Arun Jaitley has stated that it should be left to the market forces to determine its value.
The Hindu’s requests to the Finance Ministry for a response to Mr. Shah’s comments remained unanswered.
Ministry sources, however, confirmed that Dr. Shah’s comments had not gone down well with the Modi Government. “An explanation on Dr. Shah’s comments to the FT has been sought,” a source said. The Hindu also learnt that by Saturday evening, Dr. Shah was exploring the option of denying that he had given the quotes to FT .
Till the time of going to press, the FT had not taken down Prof. Shah’s quotes from its website. Dr. Shah could not be contacted for his comments.
Mr. Shah, a B.Tech. in Aeronautical Engineering from I.I.T, Bombay, has a Ph.D. in Economics, University of Southern California. He has been a member on various government committees including the task force on the implementation of the Goods and Service Tax that was set up in the 13th Finance Commission in 2008, the Finance Ministry’s Working Group on Foreign Investment in November 2009. Mr. Shah headed the technical team for Financial Sector Legislative Reforms Commission in 2011-2013 and was also a member of the Expert Advisory Group for the Gujarat International Finance Tec-City Company (GIFT) in 2008.
In the FT article, Prof Shah also suggested that the current system was opaque and open to abuse through negotiated deals between the RBI and the Finance Ministry. It says: “Prof. Shah, dismissed as “public relations” the suggestion that Dr. Rajan was running a tighter monetary policy than the government wanted”.
