Who should own Reserve Bank of India?: When owners disown RBI

Economic & Political Weekly, December 29, 2018


Privatising the RBI
In the article “Paranoia or Prudence?
How Much Capital Is Enough for the
RBI?” by Abhishek Anand, Josh Felman,
Navneeraj Sharma, and Arvind Subramanian,
published in EPW (8 December
2018), the authors have refrained from
commenting on the adequacy of the
Reserve Bank of India’s share capital,
which has remained static at `50 million
since the inception of the bank. I am not
commenting on the content of this article,
which I perceive as a pro-government
note to take forward the idea that was
mooted in the Economic Survey 2015–16,
but withheld on being proved unwise by
RBI’s erstwhile governor Rag huram Rajan.
On this issue, no elucidation is needed
beyond reading Rajan’s speech on “The
Independence of the Central Bank,” delivered
at St Stephen’s College in Delhi.
In a recent article, “Why Should the
Government Own the RBI?,” in the Business
Standard, dated 22 December 2018,
T C A Srinivasa Raghavan opened a
debate on the privatisation of the RBI
which had fascinated me, especially his
recommendation that the government
should “in the interest of academic enquiry,
commission a three-year project
to exa mine the implications of re-privatising
the RBI, to be led by Mr Rajan and
Urjit Patel.” Raghavan’s apprehensions are
lar gely due to past experiences of typical
governmental lethargy for quick actions.
However, some recent incidents have revealed
that where there is a will, there is
a way. One such, in the context of transforming
the RBI to a “board-driven” professional
entity, is the appointment of the new
governor, Shaktikanta Das, in record time.
In tandem with such proactivity, the
central government will need to issue an
ordinance if it wants to privatise the RBI
“in principle.” Some of the issues under
this ordinance could be the reconstitution
of the RBI’s central and local boards,
determining the limit for the bank’s share
capital—which could be between $500
billion and $1,000 billion—based on its
shareholding pattern; determining the
central and state banks and other
non-banking fi nancial entities share—
which should be about 60% to 70%—in
the reconstituted RBI; and redrafting the
RBI Act in conformity with the existing
Preamble of the RBI Act and role expectations
from the central bank. The job of
drafting such an ordinance should then
be entrusted to an expert committee of the
RBI’s past—Bimal Jalan, Rakesh Mohan,
Raghuram Rajan and Urjit Patel—and
present governors, without much delay.
M G Warrier


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