Regaining credibility: RBI has suffered a loss of stature and autonomy...
This refers to your editorial “Regaining credibility” (Business Standard, December 29). The marginalization of India’s central bank by GOI through finance ministry reached its peak when Chidambaram as FM threatened ‘walk alone’, if RBI doesn’t fall in line with Centre’s prescriptions. The then Governor Duvvuri Subbarao has recorded his bitter experiences in his memoirs “Who Moved My Interest Rate?”.
It has to be said to the credit of Dr Subbarao and his illustrious successor Dr Raghuram Rajan, that both took pains to understand the legacy and role of Reserve Bank of India and were quick in responding to any effort from outside to undermine the esteem of the central bank. Their fast and measured responses from inside (policy angle) and outside (through interaction with media and speeches) will be part of RBI’s history for the current decade, when it is written.
The responsibility for the present predicament of RBI has to be shared equally by GOI and RBI’s Central Board. Dr Rajan who had accepted governorship for three years was in India on leave from academia. But during the three years from September 4, 2013, he never ever gave an impression that he was on a tenure-based short-term assignment and had given clear indications that he was willing to continue beyond September 3, 2016, as long as necessary to complete ‘unfinished task’. Of course, demonetization was not being discussed at that time.
By now it is clear that the PM’s advisors in Delhi did not bring RBI on board or did not ensure backward and forward linkages necessary for demonetization turned out to be a multi-dimensional huge project. Though being mocked for repeatedly changing instructions, within the constraints, RBI and banks have cooperated with the GOI initiative and as people were convinced about the objectives, things are still under control. But, time is running out for GOI to ensure better coordination between Finance Ministry and RBI so that there is no disharmony in policy approach. GOI should also resist the temptation to deplete RBI’s reserves using ‘demonetization’ as a veil.
M G Warrier, Mumbai