The anatomy of regulatory independence

.....There was little change in RBI’s position from its creation in 1935 and 1991. After 1947, it was handmaiden of an economy in the pincer-grip of vicious planning. Independence was irrelevant as credit allocation, rates, bank ownership, and currency were controlled. And automatic monetization of fiscal deficits was pervasive. Government intervention was rampant, degenerating into banks being required to adhere to economic policies instead of prudential ones. Governor Rama Rau's resignation in 1958 after unceremonious treatment by the finance minister was symptomatic of the prevailing conditions. With the reforms of 1991, new banking licences in 1993-94 and elimination of ad hoc treasury bills in 1997, RBI’s autonomy turned a new leaf. This was bolstered by the FRBM Act relieving RBI of the task of underwriting federal borrowing. The debate on autonomy in India restarted in the mid-2000s, with the famed scuffles between the then RBI Governor Y.V.Reddy and the finance minister. But this was not just a clash between two personalities and had a structural element to it........

Read - Mint