How independent can a central bank head be?
How independent can a central bank head be?: Former Reserve Bank Governor YV Reddy pens his memories...
Online comments:
"Revelations made by Y V Reddy now and his successor Dr Subbarao last year explains the motives of political leadership in appointing FSLRC with a 'yours obediently' chairperson, which gave a report recommending breaking whatever remained of the backbone of RBI. The avatar of Dr Rajan on the scene retained India's central bank in one piece temporarily. Hopefully the generation of Urjit Patel and Viral Acharya will not delay dissent where appropriate, as they, like Dr Rajan can afford to be open while in service."
M G Warrier
RBI Autonomy: Final diagnosis
This refers to the piece “How
independent can a central bank head be?” by G Naga Sridhar(Business Line, January 14). The revelations
oozing out of Dr Y V Reddy’s “Na Gnapakalu”(My Memories) and the book “Who
Moved My Interest Rate?” published last year by his successor Dr Duvvuri
Subbarao together give the rationale for setting up of the Financial Sector
Legislative Reforms Committee (FSLRC) with a ‘yours obediently’ chairperson, by
the then political leadership.
The FSLRC chairperson proceeded with
an assumed mandate to ‘truncate RBI to size’, with less emphasis on financial
sector legislative reforms per se. The monologue report its chairperson wrote,
brushing aside dissents from members and Dr Raghuram Rajan’s perseverance to minimize
damage to the institution he presided over during 2013-16 have become history.
Dr Reddy has, in another interaction
with media, said that he would have quit governorship, if GOI went against his
advice in the matter of demonetization. In the absence of any evidence that RBI
had opposed the move, observations like this coming from eminent veterans serve
only to weaken the central bank further. Urjit Patel, who is fortunately
healthy, has no option to get hospitalized on false grounds, either.
Now that three successive governors
have been under political pressure to fall in line with GOI’s short-term
perceptions about economic policy, the diagnosis is clear and pressure has to
mount on GOI to restore RBI’s credibility and ability to perform the central
bank’s mandated functions within the contours of the law of the land.
There is a concerted effort from
vested interests to weaken RBI, by creating confusion about ownership (RBI’s
capital belongs to GOI!), autonomy (An air of suspicion is created by giving an
impression that RBI is seeking ‘functional and policy independence’ outside the
legal framework, which is not the case) and comparison with functions of
central banks elsewhere. Fact being, RBI’s role in India’s economic growth has
evolved in the Indian context over decades, and the inseparability of alignment
between monetary and fiscal policies as also the need for harmonious
relationship between GOI and RBI was never under dispute till 1990’s. Once
diagnosis is clear, cure is within the reach.
M G Warrier, Mumbai
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