In his last speech before retiring as the Reserve Bank of India (RBI) Governor and handing over the reins to Raghuram Rajan, D Subbarao highlights fact that the Indian rupee is not freefalling and the economy is not sinking because of him. In fact, he turns on the Manmohan Singh-led government and roundly slams it for its policies.
Subbarao was sharply critical of the government, blaming its "loose fiscal stance" for the current economic woes, and warned that the root cause of Indian rupee depreciation is "domestic structural factors."
While the speed and timing of the Indian rupee's depreciation was due to the markets reacting to US Fed announcements, Subbarao said, "We will go astray, both in the diagnosis and remedy, if we do not acknowledge that the root cause of the problem is domestic structural factors."
He said it would be "misleading" to blame recent policy pronouncements of the US Federal Reserve for the decline in Indian rupee, which has slid 23 per cent against US dollar this fiscal.
"... there has been a growing tendency to attribute all of this (ferocity of Indian rupee depreciation) to the 'tapering' of ultra easy monetary policy by the US Fed. Such a diagnosis, I believe, is misleading," he said in his last public lecture as RBI Governor.
While some of the growth slowdown was attributable to the RBI's monetary tightening, he said, "India's economic activity slowed owing to a host of supply-side constraints and governance issues, clearly beyond the purview of the RBI."
Blaming the "loose fiscal stance of government during 2009-12" for slow growth and high inflation, he said, "Had the fiscal consolidation been faster, it is possible that monetary policy calibration could have been less tight."
The governor has often been criticised from within the government for his tight money policy at the cost of growth.
The root cause behind the Indian rupee's decline, he said, is a current account deficit (CAD) that's running well above the sustainable level for three years in a row and may possibly continue at that level for the fourth year this year.
The only lasting solution is to reduce the current account deficit to a sustainable level, he said.
"Reducing the CAD requires structural solutions - RBI