VITALINFO: RBI stamps its autonomy

Tuesday, November 6, 2012

RBI stamps its autonomy

.....Should the RBI be independent and free to decide as it chooses? In 1967, on his arrival as RBI Governor, the late L. K. Jha had asserted that the RBI was bound to finance the budgetary deficit of the Government. As reported in the RBI’s 1951 to 1967 history, he had stated that: “what needs emphasising is not the independence of the Reserve Bank but that monetary and fiscal policies work in harmony and pull in the same direction.” L. K. Jha rightfully pointed out the need for harmony. What he did not state was that FM intervention in RBI-related issues would invite disaster. In Indian economic history, there is the tale of such a disaster. The lessons from it are salutary...........

Read - HBL

2 comments:

www.warriersblog.com said...: The Finance Ministry has made it a habit of asserting its ‘ownership rights’ over regulatory bodies more often than necessary. This does not augur well especially in an open market economy where more and more controls give way to effective guidance and self regulation. In such a situation, the balance of convenience is in not disturbing the autonomy of statutory bodies like RBI. For ensuring autonomy, a couple of other factors that need immediate review are the selection procedure of incumbents of top management positions in regulatory bodies and their remuneration and service conditions. Where these are kept captive by the Finance Ministry, the possibility of the FMs expecting master-servant equation cannot be ruled out.
PM who knows the harm strained relationships between regulators and FM can cause to the economy must immediately intervene and try for a breakthrough. If the buck doesn’t stop there, we will see more and more of controversies like the present one, capable of destroying the gains made by the Indian economy, mostly during the period Dr Manmohan Singh was in charge.; Nov 6, 2012, 4:14:00 PM
M.L.Mahajan said...: I fully agree with the views of Shri MG Warrier. As long as the MOF has the final say in the appointment of Governor, RBI, the ministry would continue to treat the RBI as its backyard notwithstanding some degree of autonomy a few of the Governors might snatch.The only remedy is to make the post of Governor, Central Bank as the constitutional one like CAG and CVC. The PM, who himself had been Secretary, MOF, Governor, RBI and then FM, is in a better position to make the office of the Governor,Central Bank, free of MOF and it is right time that he should intervene.

M.L.Mahajan; Nov 6, 2012, 5:58:00 PM