Monday, March 30, 2015

Remaking RBI: Rushing changes is unwise

Moves are afoot to diminish the role of RBI in the financial sector. Whatever the theoretical merits of the different proposals, the government needs to hasten slowly. It's not as if financial regulation or the RBI in particular is an obstacle to growth today. There are plenty of other things the government needs to do more urgently in terms of the economic agenda - it's hard to see why remaking the RBI should be a priority at the moment.

It may be well that the political establishment, including the bureaucracy, has been upset over the years over the RBI's stand on interest rates.Some of its frustration is understandable but the solution is not to cut the RBI to size but to engage more vigorously with the RBI governor on interest rates.

More on the differences between the finance ministry and RBI in my piece here.


Amit Kumar said...

I think in 4th last line it should read as "The solution is not to cut the RBI to size...

Thank You.

T T Ram Mohan said...

Amit, thanks for pointing out the error, it's been corrected TTR

Anonymous said...

Hi Prof,

Was a bit surprised on this thought... In a previous post you had argued for a case where the govt should have more say in the monetary policy ..

I think the present govt has not been able to kick start private investment... which is going to difficult unless rates go down ...

It ofcourse doesnt have unlimited time and needs to show something by the next elections particularly in bihar. Unless some form of activity starts, it will be difficult for
the govt to consider some more reforms.

- Deeps