.......The commission is duty-bound to re-examine legislation governing central banking. The RBI Act was enacted in 1934 and is still a 'temporary' piece of legislation. But the real issue seems to be designing the right framework that enhances RBI's independence as a monetary authority, insulated from the executive's short-term outlook and pressures. The commission does promise to "...draft a monetary policy law emphasising the issues of independence, enumerated objectives, enumerated powers, and accountability mechanisms." The RBI Act has to be overhauled since it seems to have been designed to give control to the government, like the power to appoint the Governor and his deputies, power to vary their tenure, power to issue directions (after 'consultation' with the governor), and so on. The challenge, of course, is marrying independence with accountability. The approach paper says that one of the strategies used globally is inflation targeting. However, RBI has rejected this time and again primarily because most of the factors influencing inflation in India are outside the central bank's controls............
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