There are four elements of the report card that we would write in December 2014. How much has year-on-year CPI inflation declined? Did the exchange rate hijack monetary policy? Has the bond-currency-derivatives nexus started thriving, with liquidity and market efficiency? Has substantial implementation of the Indian Financial Code taken place?
The very purpose of VITALINFO is to provide a platform for wider dissemination of updated information related to and happening of events in and around RBI.
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The draft Indian Financial Code written by the Financial Sector Legislative Reforms Commission(FSLRC) which defined the objectives of the Reserve Bank of India(RBI) asunder, practically ignored the evolution of RBI and the present Indian context of financial sector regulatory environment:
(a) formulate and implement monetary policy; and
(b) carry on other activities of a central bank, including –
(i) to issue currency of India;
(ii) to transact certain business of the Central Government and the State
Government, as contained in section 348 and section 349 respec- 10
tively; and
(iii) to act as banker to banking service providers.
The FSLRC would have perceived things differently, if it had recalled the preamble of the RBI Act, 1934 which read asunder:
“…And whereas in the present disorganization of the monetary systems of the world it is not possible to determine what will be suitable as a permanent basis for the Indian monetary system;
But whereas it is expedient to make temporary provision on the basis of the existing monetary system, and to leave the question of the monetary standard best suited to India to be considered when the international monetary position has become sufficiently clear and stable to make it possible to frame permanent measures;
It is hereby enacted as follows: -”
Beyond some cut and paste, because of changes in the institutional structure in the financial sector or external policy compulsions, the RBI Act has not yet been subjected to the comprehensive review, envisaged in its preamble. Still, it may not be administratively expedient or even desirable to dismantle or truncate RBI as proposed by FSLRC now. Efforts should be made to improve the existing structure and mandate.
As legislative procedure and government action in the present scenario would be slow, it would be desirable for RBI itself to make an internal assessment of its responsibilities in regard to monetary policy vis a vis various other additional responsibilities such as developmental role, institution-building and management of public debt thrust on it by history.
M G Warrier, Thiruvananthapuram
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