‘Is the RBI independent? I don’t have a binary answer’

‘Is the RBI independent? I don’t have a binary answer’: Former RBI Governor D Subbarao confirms what was always speculated upon on the uneasy relations between North Block and Mint Street...

Price for uprightness
Apropos “Is the RBI independent? I don’t have a binary answer” (The Hindu Business Line, July 16), let me confess that RBI as an institution and its staff as a family, at least during the last two decades, have been paying a price for the stand-off between officials in the finance ministry and the finance minister on one side and the central bank on the other side on policy issues. Viewed in this context, the highlights from Dr
D Subbarao’s book “Who Moved My Interest Rate-Leading the Reserve Bank of India
Through Five Turbulent Years”  quoted here, do not come as surprise revelations for RBI watchers. Still, Dr Subbarao deserves a special thanks for putting together the thoughts of the well-wishers of India, in a manner that should pierce through the stubborn bureaucrats in the Finance Ministry and the ‘seasoned’ politicians who danced to their tunes during the period covered in the book.
 The fig-leaf that tried to cover shame and give an impression to the outside world that the relationship between GOI and RBI is unlikely to break, come what may, has been removed. The highlights also explain why Dr Rajan is waiting for the end of the current term, to leave Mint Road.
In an article written on Dr Raghuram Rajan in August 2013, when his appointment as 23rd Governor of RBI was announced, I had suggested Dr Rajan read History of RBI,
Volume I. My present suggestion for the prospective 24th Governor is to own a copy of Dr Subbarao’s present book and get back to it whenever the choice is between advice of conscience and the expectations of political leadership or ‘veterans’ in the finance ministry.
S S Tarapore used to write that RBI Governor and his deputies have constraints as their continuance is at the sweet will of GOI. The finance ministry interference does not stop with policy issues affecting economy, but percolate to minor HR-related wage and pension matters governed by independent statutes and regulations. If successive RBI Governors and their deputies are fighting for RBI autonomy and falling, time is opportune for a review of GOI stance on the issue, to restore the prestige of India’s central bank in national interest.
GOI continued to tease RBI Governor and the central bank staff by asserting ownership rights after Dr Subbarao left Mint Road also. Dr Raghuram Rajan has succinctly elucidated the areas of friction between GOI and RBI in the chapter “Governor’s Overview” of the RBI Annual Report 2014-15. For example:
Paragraph X.28, captioned “Superannuation Benefits” of the report, quoted hereunder, is a tell-tale narrative which prompted S S Tarapore to make the following observation in his column in this paper once:
“Has one ever heard of a borrower wanting to determine the remuneration of the banker? Prime Minister Narendra Modi should break government’s hegemony over the RBI.”
“Superannuation benefits
In 2003, the Reserve Bank, with the approval of the Central Board, had made some improvements in the monthly pension paid to employees who retired prior to November 1, 1997. However, the government had observed that the improvements in the pension scheme could not be effected without suitably amending Regulation 2(2) of the RBI Pension Regulations, 1990 and requested the Reserve Bank for their withdrawal. In October 2008, these improvements in monthly pension were withdrawn by the Central Board. This was, however, challenged in the High Court of Judicature in Bombay, where the Hon’ble High Court set aside the Reserve Bank’s circular regarding withdrawal of improvements. Since then, there has been persistent demand from all the pensioners/retirees for improvements in pensions. However, the matter remains unresolved till date, though the Reserve Bank and the Government are fully engaged with the issue.”
The issue remains unresolved till date.
M G Warrier, Mumbai


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