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Letter to BS: RBI, govt shouldn't make public their differences on issues

While the RBI is accountable to the government, these avoidable public statements create the perception that its ability to perform its stated functions is being slowly eroded

Business Standard 

Raghuram Rajan
Former RBI governor Raghuram Rajan

This refers to “Jobs, tolerance, protection of institutions key issues: Rajan” (January 23). Often perceptions about the degree of autonomy enjoyed by important institutions is as important as the reality. Over the years, there has been an increasing tendency on the part of the mandarins of the North Block to stray into the Reserve Bank of India’s (RBI) regulatory domain. In the UPA II period, the then secretary of Department of Financial Services (DFS) used to issue circulars to public sector banks (PSBs) containing instructions that often contradicted the regulatory instructions of the on those subjects. In the present context, the mandarins are given to making public statements on issues that fall in the regulatory domain — that is, capital adequacy, prompt corrective action framework, level of reserves to be maintained etc. These statements confuse the banks, markets, investors and the public about the level of operational autonomy enjoyed by the central bank.

While the is accountable to the government, these avoidable public statements create the perception that its ability to perform its stated functions is being slowly eroded. These issues need to be quietly discussed between the government and the rather than be aired in public. This is important since the RBI has set up committees with the permission from the government to look into many important issues. Nothing should be said or done that creates the perception that these committees will merely echo the publicly stated views of the government.

Arun Pasricha New Delhi

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First Published: Wed, January 23 2019. 21:25 IST
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