Insulate RBI from external influences

The downward slide in the value of the rupee vis-à-vis the dollar is not as hopeless as Union finance minister Pranab Mukherjee had made it out, when he attributed it to the global financial crisis. On the contrary, Reserve Bank of India deputy governor Subir Gokarn has asserted that the RBI had indeed taken some corrective steps and would continue to take them to arrest the slide. The bank’s intervention had, indeed, some effect, particularly when fears were expressed that the value of the rupee would plummet to Rs 55 per dollar. The bank took such steps as increasing the interest rates on non-resident (external) rupee term deposits to increase the flow of foreign exchange into the country’s financial system. As Gokarn mentioned while addressing the ‘CFO Summit 2011’ organised by the Confederation of Indian Industries (CII), in Mumbai on Saturday, the central bank does not usually make such interventions to prop up the rupee. But in the volatile financial conditions in which the rupee has a free fall, it is incumbent upon the RBI to take necessary corrective steps. After all, the financial health of the nation is closely related to the value the rupee commands in the international money market. For instance, the drastic drop in the rupee’s value has adversely affected imports, particularly of crude oil on which the country spends maximum foreign exchange. Under the circumstances, the interventions the RBI made were certainly called for. Most of the time, if the bank functions as an adjunct of the finance ministry, it cannot be found fault with, for they have to work in tandem. However, politicians in power have their vested interests, mainly because of their links with corporates, some of whom stand to gain if, for instance, the rupee falls. It is only natural that they may use their power to influence decision-making in the central bank. This is all the more reason that the RBI should be insulated from political and corporate influences in their day-to-day functioning as its primary task is to protect the interests of the common man, rather than the corporates. 

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