The Reserve Bank of India (RBI) must be strong and independent to say no to the highest echelons of the government, governor Raghuram Rajan said on Saturday in his last public speech before ending his tenure as the central bank head.
He also pitched for elevating the rank of the RBI governor saying it should be commensurate with the position as the most important technocrat in charge of economic policies of the country.
Rajan, who had repeated face-offs with the political establishment for ignoring calls to cut interest rates, has said he will return to academia after leading the country’s top bank through wide-ranging reforms including a landmark switch to inflation-targeting.
Though his tenure ends on Sunday he is likely to hand over charge to his successor, deputy governor Urijit Patel , on Tuesday.
“The central bank should be independent and should be able to say no to seemingly attractive proposals,” he said delivering a lecture on ‘Independence of the central bank’ at the St. Stephens College here.
“The Reserve Bank cannot just exist, its ability to say “no” has to be protected...” said the outspoken economist whose tenure was marked by controversies triggered by comments on intolerance debate to the government’s flagship programme ‘Make in India’.
He, however, added that the central bank cannot become free of all constraints, as it has to work under a framework set by the government.
The 53-year-old, known as the ‘Rockstar Banker’ for his boyish good looks, said the freedom to take operational decisions is important for the central bank.
“However, there are always government entities that are seeking oversight over various aspects of RBI’s activities. Multiple layers of scrutiny, especially by entities that do not have the technical understanding, will only hamper decision-making,” he said.
On his push for elevating the rank of the RBI governor, currently at par with Cabinet secretary, he said, “There is a reason why central bank governors sit at the table along with the finance ministers in G-20 meetings.”
Former RBI governor Bimal Jalan said that since the mid-1990s, India has managed its economic situation well.
“(The) situation was quite critical in the 1990s and we had a situation and the balance of payment was a huge issue but post that there has been no cause for concern... now we have a good foreign exchange reserves, we are the fastest growing economy,” Jalan told HT.
He, however, refused to comment on the issue of the RBI governor’s rank. “That is between the government and the RBI…I am out of it.”