RESERVE BANK OF INDIA @ EIGHTY : TIME FOR INTROSPECTION Having commenced functioning on April 1, 1935, Reserve Bank of India is celebrating its 81st birthday on April 1, 2015. If one goes by the messages exchanged between the then Secretary of State for India and the Reserve bank of India Governor on the occasion of the inauguration of the Bank, looking back, the institution can be proud about having met the role expectations excellently well. To quote from the History of the Reserve Bank of India(Volume I): “On the occasion of the inauguration of the Bank, the Secretary of State for India sent the following message to the Governor: As Reserve Bank commences active operations today I take opportunity to convey to you and your colleagues on the Board my most cordial good wishes and to express my confidence that this great undertaking will contribute largely to the economic well-being of India and of its people. Replying on behalf of the Deputy Governors, the Board and himself, the Governor assured the Secretary of State, That their utmost endeavour will be to promote the economic well-being of India and thereby completely justify the institution of the Reserve bank of India” It cannot be just coincidental, that while interacting with media on march 22, 2015 after addressing the 550th Central Board Meeting of the Reserve bank of India, Finance Minister Arun jaitley sought to dispel any talk of rift with RBI. He said: “There has always been and will continue to be a regular interaction between the Reserve bank and the government…We have complete free and frank discussions, and therefore, there is no question of any disconnect. I have repeatedly clarified that.” This reassurance, coming in the context of the Union Budget 2015-16, which contains certain announcements aimed at redefining the traditional relationship between GOI and RBI, need to be taken in the right spirit and welcomed. The views expressed by RBI Governor Dr Raghuram Rajan about debt management, fiscal deficit and the measures to be initiated by central and state governments to improve environment to support economic development, should be seen in this context. A reading together of the views of the Finance Minister and the RBI Governor gives one the comfort that the harmony in approach of GOI and RBI which existed in the initial days of RBI’s functioning has been preserved and, definitely ‘rift’ is not the word to be used for explaining differences in views which are being discussed and settled from time to time. There cannot be two views about the need for changes in institutional structure and procedures. Fortunately, like the Indian Railways, GOI and RBI have also taken up modernisation seriously. As the institution grows, the relevance of comprehensive changes in the Reserve Bank of India Act, 1934 will be felt more and more. This had been foreseen by the writers of the Act who included the following clauses in the Preamble of the Act: “And Whereas in the present disorganisation of the monetary systems of the worldit is not possible to determine what is suitable as a permanent basis for the Indian monetary system; But Whereas it is expedient to make temporary provision on the basis of the existing monetary system, and to leave the question of the monetary standard best suited to India to be considered when the international monetary position has become sufficiently clear and stable to make it possible to frame permanent measures;” A god-sent opportunity for such a review was ignored by the Financial sector Legislative Reforms Commission(FSLRC) which opted to re-invent structures and legislative instruments to help out a government from embarrassment caused by a weak finance ministry(not weak Finance Minister) not equipped to argue its cases sensibly with statutory bodies and corporates. For several reasons, it would be expedient to preserve the present structure and role of RBI. More so, because, Reserve Bank of India has from time to time played proactive role in institution-building in the financial sector and as an organisation it has always upheld national interest. M G WARRIER


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