The recent decision of India’s finance ministry not to extend the three-year term of Subir Gokarn as the Reserve Bank of India’s deputy governor responsible for monetary policy is a reminder of the current lack of independence of the RBI; most particularly as current RBI governor Duvvuri Subbarao reportedly wanted the term extended.
The decision is probably partial revenge for the RBI’s habit last year of regularly stating in its official policy statements that further monetary easing was conditional on meaningful fiscal tightening by the government. Meanwhile, the current governor has now been reduced to a virtual lame duck since his own second term in office ends in September.
Still that said, Subbarao is likely to prove compliant by cutting rates at the next policy meeting due to be held on 29 January.
