Relevance : GS Paper III (Indian Economy)
[1300 words reduced to 200]
- Recently, there has been a spat between the Reserve Bank of India (RBI) and the government.
- Section 7 of the RBI Act gives the government the right to issue directions to the RBI in public interest.
- The recent setting up the Monetary Policy Committee is a giant step forward in terms of giving the RBI autonomy.
- There is a distinction between autonomy as a monetary authority and autonomy as a regulator. In the first case, autonomy has to be full. In the second case, autonomy is somewhat vague.
- RBI and board
- The right way of interpretation about the relationship between the RBI and board is that have concurrent powers in almost all matters.
- The board has members nominated by the Central government from various walks of life which can result in a conflict of interest. Therefore, the board has largely functioned as an adviser.
- Way forward
- It is important to have continuous and sustained dialogue.
- While the Governor can act on his own, he must listen to other members as well.
- The RBI, the board and the government must understand the limits to which they can push. A spirit of accommodation must prevail.