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‘Policy making easy, political acceptance tougher part’

RBI Governor says complexities arise when ensuring its political acceptance

Policy Pulse
Publish Date: May 14 2016 3:28PM | Updated Date: May 14 2016 3:35PM

‘Policy making easy, political acceptance tougher part’
Governor of Reserve Bank of India (RBI) Raghuram Rajan has said formulating monetary policy in India as a joyful and easy task. Besides, complexities arise when ensuring its political acceptance and one needs to be a little cleverer for that, he added while describing his job.
 
“You can’t bulldoze your way in some of these situation and therefore you have to be a little more clever. You have to understand where altering a policy from Economics 101 will make very little difference, but be politically more acceptable,” he said.
 
Addressing Cambridge University students on Wednesday as part of his concluding presentation at the two-day Marshall Lecture series 2015-16, Rajan said policy formulation in an emerging market like India is a fairly basic economics task as such.
 
Rajan however started with a disclaimer saying “None of what I say today is a policy statement. It is simply a way of thinking about the world.”
 
 “A lot of policy formulation is Economics 101. Just like in industrial countries, there is a lot of stuff, which does not require deep insights of economics. To my mind, deeper insights come when you are trying to make it politically feasible,” the former International Monetary Fund (IMF) Chief economist said.
 
Asked how easy he found his job of economic policy formulation in India, he joked: “Formulation is very easy. I think it is harder to implement the policy.”
 
On a more serious note, he added: “The joy of trying to formulate policy in a developing country is that there are many more places where good policy can have significant effects. In that sense, there are lots of low hanging fruits and often no real impediment to plucking them. You have to be a little intelligent about what fruits are easy to pick and what are not so easy to pick. And if they are not so easy, what kind of strategies to pick.”
 
The on-leave Professor of Finance at the University of Chicago’s Booth School was addressing the topic of ‘Banks, Central Banks, and Crises’ to conclude his two-day lecture series organised by the Faculty of Economics of Cambridge University.