Ajay Shah: RBI independence: The middle ground
Ajay Shah: RBI independence: The middle ground: In the principal-agent relationship of finance ministry and central bank, autonomy arguments are weak...
Understanding RBI’s role
This refers to Ajay Shah’s piece “RBI independence : The middle ground” (Business Standard, Snakes & Ladders, January 23). While accepting the writer’s right to retain his point of view, let me reject as unacceptable the ‘truism’ in the concluding paragraph that “Humans are the same everywhere, and all humans desire arbitrary power, laziness and corruption”. Perhaps, the Financial Sector Legislative Reforms Commission (FSLRC) with which Shah was associated built up its report keeping this thought in the background. This article has skipped the developments during the three-year period when the presence of Dr Raghuram Rajan, a professional with common sense sorted out most of the relationship issues between RBI and GOI.
Shah has oversimplified things by bringing RBI on par with other regulators working ‘under’ Finance Ministry. In the Indian context, RBI’s role has evolved differently and as Y V Reddy reminded recently financial sector regulation is only one of the many functions RBI is responsible for. The article revives pre-FSLRC, or pre-2013 issues which are no more relevant. The need to align monetary and fiscal policies, RBI’s role as an expert advisor to GOI in forex and debt management and sole authority for currency management is not in dispute today. Post-demonetization confusion about ‘who did what and when’ is essentially media creation and is getting sorted out fast.
None of the statutory bodies including judiciary and RBI can be ‘autonomous’ or be ‘independent’ from the government of the day, as ultimately law of the land will prevail. Analysts and media confuse laymen by using these words to divert attention when one or the other statutory body raises the issue of functional freedom within the contours of law. As rightly argued in the article, what is needed is, filling up all vacancies on the boards of statutory bodies by individuals who will apply their mind and will not look to North Block before opening their mouth. Only such empowered boards will be in a position to infuse professionalism in the working of institutions like RBI.
Maybe, the draft Indian Financial Code mentioned by the writer could be a reference point to begin another comprehensive exercise to reform India’s Financial Sector. This will have to be participatory, involving GOI departments/ministries concerned and statutory bodies whose function will be reviewed.
M G Warrier, Mumbai