Tuesday, July 19, 2016

Subbarao and RBI autonomy

D Subbarao's recent book on his tenure as RBI governor has occasioned another bout of government-bashing. Ministers trying to browbeat the RBI, we are told, is nothing new. What happened to Rajan also happened to Subbarao.

I haven't read the book but I have gone through the excerpts and reports that have appeared in the media. I can't resist the feeling that the idea of the RBI's autonomy being threatened by the government is hugely overblown.

When it comes to internal matters of the RBI, there is virtually no interference. On recruitment, pay and perks (broadly within the government framework), promotions, and numerous other matters, the RBI has a free hand.

On matters that impact on the economy- monetary policy, bank regulation, exchange rates, etc- yes, the government does seek to influence outcomes. But seeking to influence is not the same as browbeating or imposing. There are discussions and phone calls and the government conveys its views. There is nothing wrong with that as long as the it's left to the RBI governor to take the final call- and that has been pretty much the case with both Subbarao and Rajan.

What many people mean by autonomy is that the RBI should be left to its own devices in these matters and also that terms of RBI governors should be automatically renewed. That's too much to expect of any government, it won't happen and it isn't even desirable. The government is responsible for overall economic outcomes and thus will influence decisions at RBI and will also want to have as governor or deputy governor individuals with whom it has a degree of comfort. This does not, in my view, conflict with central bank independence.

More in my article in the Hindu, Limits to autonomy

1 comment:

Murugavel.J said...

True. We sometimes forget the fact that we are a democracy and the Government of the day - as the representative of the people and their aspirations will naturally seek to influence the RBI. After all, the RBI is not an extra constitutional authority.