1. In Diplomacy at Home, Govt Set to Repair Ties
with RBI
The government is moving to improve its relations with financial regulators, particularly the
central bank, ahead of a possible coordinated effort to stem the rupee slide. There is
concern that public airing of differences by policymakers is hurting management of the
economy at a time the currency is plumbing new depths. One measure being considered is
to appoint a senior official in the finance ministry to work closely with the regulators.
The initiative to fix the working relationship between the finance ministry and regulators
comes amid a growing feeling at the top levels of the government and RBI that concerted
action is needed to stop the slide of the rupee, which closed at 60.24 on Friday and briefly
crossed 61 on Wednesday.
In New Delhi on Sunday, Finance Minister P Chidambaram presided over a meeting
attended by some of India’s top economic policymakers, including RBI Governor Duvvuri
Subbarao, Planning Commission Deputy Chairman Montek Singh Ahluwalia, PM’s
Economic Advisor C Rangarajan and the finance ministry’s top bureaucrat Arvind
Mayaram, to discuss steps to stabilise the weakening currency. Policy measures in the
works could include more intense efforts to woo foreign capital, in particular sovereign
wealth funds, which are perceived to be safer than other types of portfolio money, said a
person briefed on the issue. The key macroeconomic challenge facing the government and
RBI is to manage short-term external debt, amounting to $172 billion, due for repayment
next year. India’s total forex reserves are now just under $285 billion. Preparing for Bad
Times
The decision to appoint a point person to work with regulators was the outcome of recent
meetings between the prime minister and finance minister. Given the prospect of a further

2. slide in the rupee, the government wants to ensure a far more harmonious relationship
between the finance ministry, RBI and the Securities and Exchange Board of India (Sebi)
so that differences at the leadership level do not end up jeopardising plans for coordinated
action to handle an external shock, said the person briefed on the developments.
In 2008, the finance ministry, RBI and Sebi worked closely after the global financial crisis to
contain the fallout in the local markets and there is a widespread perception that a major
crisis is around the corner that would call for a similar response.
The government has identified a person who will be part of the finance ministry and work
closely with RBI and other regulators, the person quoted earlier said. He spoke on
condition of anonymity. Differences over policies between the finance ministry and RBI,
which regulates banks and sets interest rates, is hardly uncommon, but in the past they
have rarely been aired in public. Senior government officials privately concede that over the
last few years, there have been conflicts on some issues, notably interest rates. On a
number of occasions, Chidambaram has expressed concern over RBI’s reluctance to cut
interest rates.
Earlier, during the tenure of Pranab Mukherjee, Subbarao had opposed the creation of a
statutory Financial Stability and Development Council, or FSDC. Relations between the
central bank, Sebi and the finance ministry deteriorated during the phase when Mukherjee
headed the ministry between 2009 and 2011 and though it is not half as bad it was back
then, there is much to be ironed out, officials say.
With investors jittery about the prospects of a withdrawal of accelerated bond purchases by
the US Federal Reserve and India's record current account deficit at 4.8% of GDP, an
anxious government now wants to ensure that the regulators are also on the “same page”
when it comes to management of foreign exchange and related issues.

3. Two top officials who worked in the government and were later connected to regulators
said public airing of differences was a matter of concern as it impacts markets and alters
expectations. “If the leadership is seen disagreeing, it percolates to people down the line
and has an impact on operational issues,” said one of the officials. Both declined to be
named citing the sensitivity of the issue. The key to successful co-ordinated action was a
common goal and respect for the viewpoint of others besides the ability to speak frankly on
issues without being misunderstood, the person said.
A former finance secretary said following conventions and traditions are also important to
prevent a breakdown of the institutional structure.
Others point to the experience of 1997-98 when during the Asian crisis, the NDA
government, which was batting for a strong currency, had to rein in some of its frontline
leaders after the central bank made it clear that it was impacting the currency markets.
Yashwant Sinha, the then finance minister, and then prime minister Atal Bihari Vajpayee
stepped in and settled the issue.
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