Importance of RBI Governor's views

Importance of RBI Governor’s views

While the Finance ministry plans and executes fiscal policies, RBI controls monetary policy in India. It is an autonomous regulatory body. The functioning is fairly uninfluenced by the populist government decisions.

RBI performs the following vital roles in India:
  • Formulates, implements and monitors the monetary policy.
  • Supervises financial sector comprising commercial banks, financial institutions and non-banking finance companies.
  • Manages foreign exchange.
  • Issues currency and destroys the currency which is unfit for use.
  • Performs a wide range of promotional functions to support national objectives.
  • It is the banker to the Government: performs merchant banking function for the central and the state governments.
  • It is banker to banks: maintains banking accounts of all scheduled banks.
RBI does so to achieve the following broad objectives:
  • Maintain price stability and ensure adequate flow of credit to productive sectors.
  • Maintain public confidence in the financial system, protect depositors’ interest and provide cost-effective banking services to the public.
  • Facilitate external trade and regulate foreign exchange market in India.
Recent Developments:

In Feb 2015 an agreement on Monetary Policy Framework (MPF) was signed between RBI and Finance Ministry, committing the RBI to bring inflation below 6% by Jan 2016 with a target of 4% with a band of plus/minus 2 per cent for 2016-17 and ensuing years. The accord planned constitution of a Monetary Policy Committee (MPC) which will set the monetary policy, instead of the current practice where the RBI does so autonomously. This will bring policy making in public domain and increase transparency.

Importance of RBI Governor’s views
  • The last few RBI governors have worked in the economic interests of the country and have not succumbed to pressures by the Finance Minister. The relations between Chidambram and Subbarao were strained because the latter refused to lower the interest rates as per the former’s desire. He was able to keep a check on inflation. The trend has been continued by Raghuram Rajan.
  • The RBI, as also the personalities who have held the appointment of Governor have raised the credibility of the appointment.
  • RBI governor’s views are realistic, credible and unbiased.
  • Actions taken by RBI Governors are conservative, which is appropriate given the onerous responsibility.
  • Thus all observers of India’s economy must take a more serious note of the views of RBI Governor rather than the Finance Minister.


Share on facebook
Share on twitter
Share on linkedin
Share on whatsapp

1 Comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Post comment