Putting RBI on the defensive


March 22, 2019
Putting RBI on the defensive
This refers to Anup Roy’s analytical piece “RBI’s bond purchases can be inflationary: Economists” (Business Standard, March 22). Post-FSLRC (Financial Sector Legislative Reforms Commission) report, there has been considerable misunderstanding and confusion in the public mind about the role and functions of RBI. The timely appearance of Raghuram Rajan at Mint Road saved India’s central bank from being broken into pieces or truncated.
But Delhi (political leadership and bureaucracy) was not comfortable with a strong RBI remaining in charge of all the mandated roles and taking on itself certain social responsibilities supportive of national objectives. Result is, an impression has been created in the common parlour that other than pursuing an inflation target prescribed by GOI in consultation with RBI, everything else including day-to-day administration of the central bank was the responsibility of central government. Raghuram Rajan’s exit on completion of his initial tenure and Urjit Patel’s abrupt unilateral resignation on December 10, 2018 are attributable to the non-cooperation from Delhi in carrying out functional responsibilities.
RBI’s measures in implementing its core functions including monetary policy management may not be amenable to concurrent analysis in isolation.  That explains the divergent views on the recent RBI intervention in bond market, expressed by bankers, bureaucrats and economists. GOI and RBI have to work together and build trust in policy formulation and implementation.
M G Warrier

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