RBI should be autonomous

The conflict between the government and the Reserve Bank of India, is nothing new. But it does underline the tendency of successive governments to want control over what is essentially the prerogative of the RBI. Earlier, it was then governor of the RBI, D. Subbarao, who had differences with then finance minister P. Chidambaram over interest rates in the tussle between growth and inflation. The government wanted to use the country’s forex reserves for infrastructure projects. Mr Chidambaram was so peeved that he made this stunning statement: “If the government has to walk the path of growth alone, it is prepared to do so.” Mr Subbarao’s predecessor, Dr Y.V. Reddy, also had differences with the then finance minister, that was light-heartedly described as more severe than the Indo-China war. Dr Reddy however called it “creative tension”. The government also had its differences with RBI governor Raghuram Rajan and that was why, it is said, he was not given a second term.

Memories of these conflicts were rejuvenated when the Modi government last week proposed to bring the payments regulatory board under its control. Globally, central banks have been in charge of the payments system, and in India RBI that was in control. The payments system includes personnel policy, electronic payments, electronic funds transfer, mobile-banking, etc., and the RBI has been doing a good job hitherto, so the finance minister should have explained as to why it is making this move. The Modi government has been accused of rendering most autonomous institutions toothless and usurping powers of various ministries into the Prime Minister’s Office, including to get the Securities Appellate Tribunal to resolve the payments cases, bypassing the RBI. This undermining of critical institutions and procedures must stop. Or in cases where deemed necessary, decisions must be explained and have a time-bound resolution.