Apropos of Deputy Governor (Chakrabarty)'s statement that RBI should be accountable to Parliament I am reminded of the debate we had in the Bank during the time of Dr I G Patel as Governor. A suggestion was then made by the Finance Ministry, at the instance of a Member of Parliament, that the Reserve Bank of India should submit its Annual Report to the Parliament rather than the Ministry of Finance. As a Deputy Director in the then Banking Division of the Department of Economic Analysis and Policy I was asked to handle the matter on a reference from the Secretary’s Department. At this point of time I can only remember a few points I made then. In the first place, I argued that even the so-called independent central banks of the time, with the exception of the Bundesbank, were losing that status. For example, I pointed out the fact that the Federal Reserve was being subjected to public audit and the Chairman of the System needed to appear before the Congressional Committees to justify the central bank’s policy from time to time. The confrontation between President Truman and the US Federal Reserve System on the question of who decided the Treasury Bill rates was resolved on the understanding that the Fed was ‘independent within government’ and there was no absolute independence whatsoever. I proposed that there might not be any objection to the proposal from the Ministry of Finance and the RBI need not feel panicky over the matter. I do not know what the final reply was from RBI to Government. Surprisingly the RBI History has not touched on this episode.
Even now the officials of the Bank appear before Parliamentary Committees like the Estimates Committee to answer questions on the RBI’s policy. I myself was a member of the delegation from the Ministry of Finance that appeared before the Estimates Committee headed by Shri Jaswant Singh to discuss public debt. It was called in the context of my article on the burden of domestic public debt in India that had been published in the Reserve Bank of India Occasional Papers(June 1987) wherein I warned of the possibility of an Internal Debt Trap. It led to an intense public debate in the press and the Parliament with appreciative comments from Shri N A Palkhivala in all the budget speeches he gave in 1988 all over India. There is already accountability of the Bank to Parliament. Whether it can be further enhanced by the Bank being asked to submit its Annual Report to Parliament where it could be discussed like the Economic Survey should be a matter for public debate. There are many other issues like the objectives of monetary policy, autonomy of the Bank, etc., brought up from to time. I have suggested in the past that, instead of dealing with them in an ad hoc and piecemeal manner it will be useful to have a high-power committee on the working of the Reserve Bank of India that will inter aliaprepare a new law to replace the Reserve Bank of India Act 1934 after examining all the issues and keeping in mind trends in central banking in the new century. The thinking on central banking has undergone marked changes ever since the RBI Act was passed. In the last quarter century many central banks of both the developing (eg. The Philippines) and the developed (eg. New Zealand) countries have enacted legislation to replace the existing Acts on the central bank. It is time for the new government in New Delhi to consider the matter on a priority basis.
- A.Seshan, Economic Consultant,
{Former Officer-in-Charge, Department of
Economic Analysis and Policy,
Reserve Bank of India, and
(IMF) Adviser to National Bank of Kyrgyzstan and
Bank of Sierra Leone}
Even now the officials of the Bank appear before Parliamentary Committees like the Estimates Committee to answer questions on the RBI’s policy. I myself was a member of the delegation from the Ministry of Finance that appeared before the Estimates Committee headed by Shri Jaswant Singh to discuss public debt. It was called in the context of my article on the burden of domestic public debt in India that had been published in the Reserve Bank of India Occasional Papers(June 1987) wherein I warned of the possibility of an Internal Debt Trap. It led to an intense public debate in the press and the Parliament with appreciative comments from Shri N A Palkhivala in all the budget speeches he gave in 1988 all over India. There is already accountability of the Bank to Parliament. Whether it can be further enhanced by the Bank being asked to submit its Annual Report to Parliament where it could be discussed like the Economic Survey should be a matter for public debate. There are many other issues like the objectives of monetary policy, autonomy of the Bank, etc., brought up from to time. I have suggested in the past that, instead of dealing with them in an ad hoc and piecemeal manner it will be useful to have a high-power committee on the working of the Reserve Bank of India that will inter aliaprepare a new law to replace the Reserve Bank of India Act 1934 after examining all the issues and keeping in mind trends in central banking in the new century. The thinking on central banking has undergone marked changes ever since the RBI Act was passed. In the last quarter century many central banks of both the developing (eg. The Philippines) and the developed (eg. New Zealand) countries have enacted legislation to replace the existing Acts on the central bank. It is time for the new government in New Delhi to consider the matter on a priority basis.
- A.Seshan, Economic Consultant,
{Former Officer-in-Charge, Department of
Economic Analysis and Policy,
Reserve Bank of India, and
(IMF) Adviser to National Bank of Kyrgyzstan and
Bank of Sierra Leone}
