Gist of Editorials: The RBI Concedes a Vital Principle | GS – III

Relevance : GS Paper III (Indian Economy)

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  • Recently, there has been a tussle between the govt and the RBI which hints towards degradation of RBI’s autonomy.
  • There is a significant departure from what has been the position of the RBI thus far regarding policy matters. This ha led to infringement of the autonomy of the RBI by the RBI Board ( govt).
  • The precise relationship between the RBI board and the RBI management is something of a grey area.
  • Many contend that the RBI board has played an advisory role in the past and should continue to do so.
  • Reasons for Govt-RBI conflict:
    • RBI’s reserves are in excess which govt wants to be transferred to it.
    • Alignment of RBI’s capital adequacy requirement with Basel norms.
    • Easing the norms for Prompt Corrective Action (PCA) for banks.
  • Way forward
    • The RBI board must play a largely advisory role.
    • RBI’ s actions must flow from a consultative process.
  • The RBI board can turn be an important mechanism for ensuring the accountability of RBI.