Letters: Cure is within reach

With reference to the report, “Reddy: I would have resigned on demonetisation” (January 14), the revelations made by the former Reserve Bank of India (RBI) governor (Y V Reddy) in Naa Gnapakalu (My Memories) and his successor Duvvuri Subbarao in Who Moved My Interest Rate together provide the rationale for setting up the Financial Sector Legislative Reforms Commission (FSLRC) with a “yours obediently” chairperson, by the political leadership of the day. 

The FSLRC chairperson proceeded with an assumed mandate to “cut the RBI to size”, with less emphasis on financial sector legislative reforms per se. The monologue report the chairperson wrote, brushing aside dissents from members, and Raghuram Rajan’s perseverance to minimise damage to the institution he presided over during 2013-16 have become history.

Reddy has said that he would have quit the RBI governor’s post if the government had gone against his advice on demonetisation. In the absence of any evidence that the RBI opposed the move, observations such as those coming from veterans serve only to weaken the central bank. Urjit Patel, the present RBI governor who is fortunately healthy, has no option but to get hospitalised on “false grounds”.

Now that three RBI governors in a row have been under pressure to fall in line with the government’s short-term perceptions about economic policy, the diagnosis is clear. The pressure has to increase on the government to restore RBI’s credibility and ability to perform its mandated functions.

There seems to be concerted effort from vested interests to weaken the RBI, by causing confusion about ownership, autonomy and by comparing its functions with those of central banks in other countries.

The fact is that the RBI’s role in economic growth has evolved in the Indian context over decades. The inseparability of alignment between monetary and fiscal policies as also the need for harmonious relationship between the government and the RBI were never disputed till the 1990s. Once diagnosis is clear, cure is within reach.

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