The recommendations of the Financial Sector Legislative Reforms Commission include, inter alia, those bearing on the central bank ("Search for structure", March 25). The Reserve Bank of India (RBI) Act of 1934 has been amended from time to time in a piecemeal manner to implement the recommendations of many committees and commissions necessitated by changes in economic structures and policy stance. In the meantime, many other countries, both developing (such as the Philippines) and developed (such as New Zealand), have enacted new legislation to replace the existing ones. There is a need for a high-powered commission to review the RBI Act in its entirety with a view to formulating a new law that is in consonance with the latest theories and practices of central banking, including its objectives.
The preamble of the RBI Act refers to the objective of monetary stability, which was interpreted all along as price stability or the maintenance of the purchasing power of the rupee. But, since the middle of the 1980s, it has been reinterpreted conveniently as the stability of a "tolerable inflation rate" that has been going up from three per cent, the latest being a "new normal" of 6.5 per cent, though not acknowledged but built into policy making. A vital matter affecting everyone in the country - the "tolerable inflation rate" - was never discussed in Parliament. When I first made the suggestion for a new RBI Act about 15 years ago, I felt that the late N A Palkhivala would be an ideal chairman for the review committee. The government should find someone of his stature to head the proposed commission.
A Seshan, Mumbai
Letters can be mailed, faxed or e-mailed to:
The Editor, Business Standard
Nehru House, 4 Bahadur Shah Zafar Marg
New Delhi 110 002
Fax: (011) 23720201 · E-mail: letters@bsmail.in
All letters must have a postal address and telephone number
