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Last updated: 05 Aug, 2015  

RBI.Thmb.jpg Turf battle over monetary policy

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Bikky Khosla | 04 Aug, 2015
Conflict between the RBI and the Centre is nothing new. We have seen it time and again over the years, especially at times of monetary policy reviews and over growth versus inflation dilemma. But now the power struggle has intensified to a new level, with a revised draft of the Indian Financial Code calling for cutting the autonomy of the central bank and its Governor in deciding monetary policies and, in a new twist, a FSLRC member claiming that the new bill does not reflect the views of the commission, which actually favoured the Governor having the last word.

Who should, you think, decide monetary policy? While it is true that the Indian industry, which is carrying a heavy load of high interest rates, almost always pitches for a rate cut whenever the central bank reviews its monetary policy, it cannot be denied that the RBI established a track record of performance over the years. Raghuram Rajan, the present Governor, like most of the recent Governors, seems to hold the view that the central bank must primarily target inflation, and overall his success in this respect as well as in improving the country's external accounts is beyond doubt.

Another school of thought believes differently. They view that the central bank Governor - most of the times - gives too much attention to inflation and thus swings the pendulum far the other way. The government's concerns include not only inflation but also growth, investment and jobs. Rate cut is also key to kick-start manufacturing, capex cycle and infrastructure investments. So, we need to reduce influence of a single decision-maker. In addition, with the changing economic dynamics, a cohesive action plan has become imperative to address several factors that fall outside policy controls.

So, which side of argument you are on? Many a time in the past we have questioned monetary tightening measures by the RBI, but still I think that robbing the RBI and like institutions of their autonomy could lead to disaster. Encroachment on the central bank's independence will not only lower its credibility and accountability but it will also lead to monetary decisions driven by politics. Growth does not solely depend on monetary policy and it could come from a number of other measures, which have been long-awaited and are yet to come. Instead of continually taking on the RBI, the Centre should strive for a reconciliation mechanism to achieve a balance between promoting growth and targeting inflation.

I invite your opinions.
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Dr S C Gupta | Sat Aug 8 09:11:04 2015
I feel, the autonomy of the institutions like RBI need to strengthened but simultaneously its attitude to economic growth should be positive vis a vis international developments

Finance ministry should have the final say
P Shrirang | Thu Aug 6 13:33:21 2015
Have you ever heard of protest against the RBI governor for failure to tame the inflation? If the Govt has to be responsible for controlling the prices, increasing job opportunities, improving balance of trade and increasing GDP, then logically, the Govt ie. Finance ministry should have the final say. They must take inputs from RBI governor before taking the final decision.

Political mishandling of monetary policy may lead to debt trap further
P. Shrirang | Wed Aug 5 16:19:22 2015
In recent years we have seen Governments going into debt traps due to mishandling of Monetary policies due to populist measures. So far the RBI governors have been mostly renowned finance professionals while the Finance Ministers have been purely politicians without much understanding of Macro economics except few exceptions like Dr Manmohan Singh. Although, Finance ministry has many professionals, it is common knowledge in India that the Ministers can either over rule them or influence them to fall in line. Hence, RBI Governor is best bet to be given the authority to take final decisions.

Vested Interest of Central Governments
Mohit@czar talent Solutions | Wed Aug 5 11:24:39 2015
In Democracy, where usually it is seen that Various parties worked for numbers and have hardly taken the long term into the view, A machinery have to be there so that country can run with basic amenities and stipulations even without a central govt. As even a govt with full majority has been seen to misuse as BJP govt has shown in case of land bill and India has witnessed the emergency. So I believe RBI governor power should not be robbed off at all.

  Re: Vested Interest of Central Governments
Dr S C Gupta | Sat Aug 8 09:21:00 2015
I fully agree that country's monitory policy should be in the hands of RBI governor but I certainly do not agree that land bill reform of BJP is in any away against the interest of the nation as opposition does not want that government should succeed in its economic reforms for better national growth. Because they feel that if government is able to function to its full strength then they will never come to power, so the example is not appropriate. But I certainly feel that autonomy of all the national institutions including RBI should be fully restored

Monetary Policy - Review Mechanism
A V Chandran | Wed Aug 5 06:24:20 2015
Monetary Policy could be reviewed frequently and periodically based on mix of micro and macro variations of A to Z of the Nation reported from various angles by RBI Governor and his team in order to safeguard continuous increasing return in our per capita and balance of trade. If this review mechanism is in place, India can achieve a sound and healthy economics.

Turf battle over monetary policy
R.M.K.Mohan | Wed Aug 5 04:51:13 2015
The power of decision making should be with the Reserve Bank Governor in deciding monetary policies. Central Government can give some inputs while taking the decision on the policy. But, the final decision should be left to the RBI Governor.

  Re: Turf battle over monetary policy
Dr S C Gupta | Sat Aug 8 09:13:26 2015
Of course the decision making should be with reserve bank not as governor but as an institution based on current developments internationally and keeping indi's national perspective in view

Monetary Policy between RBI & Govt.
P.S.Biradar | Wed Aug 5 04:08:03 2015
Surprised to note that this tussle is going on for last somany days. Everything should be done within the framework laid down by Constitution. Only reducing interest rates by Banks will never solve the problems. Request study the problems of Industrial Sector and then come to concrete solution. Unnecessarily pressurising RBI is of no use. If u tried to do so, whole economy will collapse. So, Govt.of India should try to remove corruption,unemployment etc.

  Re: Monetary Policy between RBI & Govt.
Dr S C Gupta | Sat Aug 8 09:15:13 2015
Monetary policy and economic growth both should run hand in gloves and not against the interest of the nation

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