Tue Feb 25 18:11:58 UTC 2025: ## Former RBI Governor Warns Against “Freebie Culture” Draining State Finances

**Visakhapatnam, Andhra Pradesh (February 25, 2025)** – Duvvuri Subbarao, former Governor of the Reserve Bank of India (RBI), has cautioned against the escalating “freebie culture” prevalent in both central and state governments, warning that it is severely impacting India’s economy. In an exclusive interview with *The Hindu* in Visakhapatnam, Subbarao argued that this trend, driven by electoral promises, is hindering genuine development efforts.

Subbarao highlighted the unsustainable nature of funding freebies through debt, questioning the repayment strategy when such borrowings are used for consumption rather than asset creation. He emphasized the need for a shift in approach, echoing the Chinese proverb “Teach a man to fish, rather than giving him a fish every day.” He stressed that the burgeoning interest payments on debt are already the largest and fastest-growing expenditure for both central and state governments.

He urged the central government to take the lead in establishing a code of conduct to address the issue, initiating a crucial dialogue within the federal system.

On the RBI’s monetary policy, Subbarao explained the balancing act between price stability, growth, and financial stability, all heavily influenced by inflation. He noted the inherent tension between growth and inflation in the short term, emphasizing that the RBI’s monetary policy operates with a considerable gestation period of one to 18 months. He cited the recent interest rate cut by the RBI as an example of its response to softening inflation and slowing growth, though the impact on growth may take time to materialize.

Addressing industry concerns over liquidity shortages, Subbarao explained the RBI’s challenge in simultaneously managing monetary policy and exchange rates. He advocated for less interventionist exchange rate management by the RBI, warning against market participants outsourcing risk management to the central bank. He also stressed that a strong rupee is not necessarily indicative of a strong economy.

Finally, Subbarao expressed optimism about the latest Union Budget’s potential to stimulate growth by boosting consumption through tax cuts, particularly among lower and middle-income groups, ultimately triggering a positive impact on private investment.

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