Pulapre Balakrishnan on monetary policy by the Reserve Bank of India: Retrofitting the Reserve Bank

Pulapre Balakrishnan on monetary policy by the Reserve Bank of India: Retrofitting the Reserve Bank: John Maynard Keynes was surely right to remark that the world is ruled by ideas and little else. But he may have been optimistic in believing that “soon or late, it is ideas, not vested interests...

Excerpts:

"Central banks are pivotal to the economic system and all countries have them. Our own Reserve Bank of India (RBI) is widely admired as arguably the last institution standing up to the machinations of the political class. It has certainly helped that every Indian to have headed it has represented the highest traditions of public service and personal integrity. Persons apart, however, a certain degree of morphing of the RBI has occurred of late, some of it deliberately intended and some of it perhaps in the form of collateral damage."

Encroaching sanctum sanctorum

This refers to the excellent article on “Retrofitting the Reserve bank” by Pulapre Balakrishnan (The Hindu, August 6). Those who are aware of the evolution and functioning of Reserve Bank of India since the central bank’s inception in India will appreciate the deep understanding of the recent efforts by GOI to make RBI subservient to its temporary political ambitions explained in the article.
Till 2008, to be more specific, till Centre started searching for an ‘obedient’ RBI Governor to succeed Dr Y V Reddy, despite expressions of dissent between GOI and RBI, the assertion of ‘ownership rights’ and encroachment into the sanctum sanctorum of the central bank by the former was never so blatant and transparent. The appointment of the Financial Sector Legislative Commission which concentrated more on clipping the wings of RBI rather than worrying about changes needed in the legislations needed to implement financial sector reforms consistent with the transformation of the global financial market during the last couple of decades almost sealed the possibility of a review of the role of RBI envisaged in the Preamble of the RBI Act in 1934.
RBI is still surviving thanks to the inherent strength of the institution developed during its 75 years of existence and the willingness of RBI to resist pressure from GOI, under the able leadership of two successive governors. It is another matter that the memoirs of Duvvuri Subbarao(“Who Moved My Interest Rate?”) attracted media attention and the “Governor’s Overview”, a new chapter written into the Reserve bank of India Annual report 2014-15 by Raghuram Rajan was blacked out by both electronic and print media in August 2015.
M G Warrier, Mumbai


M G Warrier

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