RBI autonomy: Why Urjit Patel must stand up now to reclaim central bank’s integrity

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Of late, particularly after Prime Minister Narendra Modi’s decision to demonetise Rs 500, Rs 1,000 notes on 8 November midnight, the Reserve Bank of India (RBI) has become an object of ridicule and has come under sharp criticism for giving up its autonomy. The institution, which is otherwise regarded as among the few in the country that can claim the highest standards of professionalism and institutional integrity, is now facing flak for giving away its independence in functions and operating as just another department of the finance ministry. Not just by social media enthusiasts, but former RBI governors and deputy governors, economists and now, even RBI staff unions, have lamented central bank’s current plight.

A letter written by various employee unions under the United Forum of Reserve Bank Officers and Employees, to governor Urjit Patel (Firstpost has reviewed the letter), has raised the issue of Modi-government “impinging on RBI autonomy” and has asked Patel to act against the finance ministry’s “unwarranted interference” in its operations. “Apart from showing RBI operations and its gigantic performance in poor light, the government now blatantly encroaches on its jurisdiction, which we cannot accept,” the report quotes the union as saying. RBI’s autonomy and image have been dented beyond repair, the letter to Patel says.

Reuters

Reuters

“An image of efficiency and independence that RBI assiduously built up over decades by the strenuous efforts of its staff and judicious policy making has gone into smithereens in no time. We feel extremely pained,” the letter says. This isn’t the first instance someone is raising the issue of RBI autonomy in connection with the demonetisation.

Many other noted personalities, including former RBI top brass, have cited the problem of RBI being forced to toe the Modi-government’s line and the danger of an RBI sans its integrity. The chorus began with former deputy governor, Usha Thorat, who in her Op-ed in The Indian Express, wrote. “ “There have been times when the Old Lady of Mint Street was criticised for being too conservative and cautious — for not being able to keep up with innovation and markets — never has she been accused of not knowing her job. Never has she been the butt of as many jokes as in the last few days.” Similarly, Y V Reddy and Bimal Jalan, former RBI governors, too have spoken out in support of central bank’s autonomy.

In separate media interactions, both of them highlighted why the government must strive to maintain RBI’s autonomy in the interest of the larger economy. Jalan was RBI governor between 1997 and 2003, succeeded by Reddy till 2008, followed by D Subbarao and Raghuram Rajan.