Picking up the book, Indian Financial Reforms: Priorities and Policies Post Global Financial Crisis, one does tend to be a bit sceptical. The 19 articles in the book have been written by three governors or former governors of the Reserve Bank of India (RBI), three deputy governors, two executive directors and three other authors, two of whom served with the RBI and the ministry of finance, and Joseph Stiglitz. Will these pieces deliver anything new, considering that most of what the RBI top officials say is already available on its website?
With this apprehension, the reading of the book was embarked upon, and it has been an amazing experience. The collection of articles is quite brilliant, which is the case for most RBI pieces, and one of the former RBI authors, NA Majumdar, brings in a breath of fresh air where he attacks the famous Raghuram Rajan Committee Report. Stiglitz is always a pleasure to read and this time, he talks of why quantitative easing (QE) does not make sense.
Governor D Subbarao takes on Basel III in an FAQ format and asks 10 questions that everyone wants answers to. He admits that there are short-term costs, which are worth the while as even nations like China, Singapore and South Africa have stiffer targets than the RBI. At another level, he talks of the importance of the G20 in the aftermath of the crisis. Here, his view is that governments should be accountable for their actions, as in this globalised world, all countries finally get affected by each others actions. There has to be a balance between short-term goals and stability in terms of monetary and fiscal policies. In another piece, he dwells on how the traditional trilemma of balancing fixed exchange rates, monetary policy independence and capital flows has now been replaced by price stability, financial stability and sovereign debt in light of the two crises that have taken place. He subtly hints at how with long-term refinancing operation (LTRO), there has been a tendency for fiscal dominance over monetary policysomething that is debated in India too over RBI independence. There are evidently limits to the use of non-conventional measures.
Talking about non-conventional measures, such as quantitative easing, Stiglitz is at his acerbic best, where he blasts these measures that have been introduced at a time when US companies are sitting on a pile of cash. What QE does is provide