Mumbai: The government and the Reserve Bank need to act in harmony as the central bank on its own cannot fix economic woes, said RBI Governor D Subbarao here on Thursday.
"Central banks cannot fix economies by themselves. Governments need to act too from the fiscal side and monetary and fiscal policies have to act in harmony," he said.
Welcoming Nobel laureate Joseph Stiglitz at the C D Deshmukh Memorial Lecture here, Subbarao said, the monetary and fiscal policies should "act in harmony" to achieve common goals.
The comment comes in the backdrop of growing instances of apparent divergent views between the RBI and the Finance Ministry on a string of issues, including lowering interest rates and issuance of new bank licences.
The RBI had not lowered interest rates despite nudging to do so by Finance and Commerce Ministries. The central bank did not initiate the process of issuing bank licences despite assurance from Finance Minister P Chidambaram that the government would amend the Banking Act in time.
The RBI is scheduled to come up with its third quarter review of the monetary policy on January 29, in which it might go in for a cut in interest rates.
Subbarao further said there is a need for an improvement in governance to inspire trust and confidence of investors for boosting growth.
"Governance needs to improve to inspire the trust and confidence of consumers and investors," he said.
The difficult years since the collapse in 2008 has led to a number of questions including that of the autonomy of central banks, he said.
"What will it mean for the mandates of central banks and the autonomy with which they will deliver on that mandate? Who will win and who will lose? And, to sum it all up, what are the lessons from this 'revolution' for monetary policy?" he asked.