In his last public speech before demitting office, Reserve Bank Governor Raghuram Rajan on Saturday made a vigorous case for a strong and independent Central Bank that can say ‘no’ to highest echelons of the Fovernment to ensure macro-economic stability.
The outspoken RBI Governor, who completes his three-year term on Sunday and will return to academia, also pitched for elevating the ranking of its chief saying it is ‘dangerous to have a de facto powerful position with low de jure status’. “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. But in the same breath he went on to say that the RBI cannot be free of all constraints as it has to work under a framework set by the Government.
Recalling his predecessor D Subbarao’s comments on policy differences with the Government, Rajan said he ‘would go a little further’ as he believes that ‘the Reserve Bank cannot just exist, its ability to say ‘no’ has to be protected’. He said the ranking of the RBI Governor, currently at par with Cabinet Secretary, needed to be commensurate with the role. “There is a reason why Central Bank governors sit at the table along with the Finance Ministers in G-20 meetings,” he said. Rajan, who had steered the biggest overhaul yet by the RBI including a switch to inflation-targeting under a monetary policy committee, 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.