Central bank is not independent from govt: Ex-RBI governor Y V Reddy

The balance between the state and the market continues to be governed by pragmatic considerations, says Reddy

Former Reserve Bank of India (RBI) governor Y V Reddy said the central bank had been created by the government to bring in trust and faith and it could not be independent from its creator. 

The substantive elements of economic policies remain the same since 1991, despite several changes in the political leadership and this change is not making any significant difference to the continuing pragmatic approach, he added.

“A central bank has been created by the government, not by the Constitution. It has been created to assure people that money and finance are important, and are apolitical. So, please have faith. Anything ‘created’ cannot be independent from its ‘creator’,” he said. He was responding to a question on whether the post of RBI governor and the institution have been diluted in the past 12-15 months. 

Reddy was speaking at the fourth G Ramachandran Memorial Lecture organised by the Southern Indian Chamber of Commerce and Industry in Chennai.

On the economic policies, he said, “The rhetoric of economic policies, the presentation and the style has changed, but the substance remains the same. The reform that was consensus-based in the past is now agenda-based. There is a greater emphasis on implementation, a determined effort to bring about fundamental changes.”

The balance between the state and the market continues to be governed by pragmatic considerations. The private sector is encouraged incrementally, but the public sector does not retreat. In regard to the interface between the state and the market, efforts are intensified to reduce collusion and improve cooperation, he said.

However, the task ahead is complicated by the fact that building institutional framework for a modern middle income country, replacing a contact-based system with a contract-based one, is time consuming and complex.

The trend towards globalisation has been stalled at a time India wants to take advantage of globalisation.  There are more uncertainties in regard to global economic order than ever before. Yet, India has a better standing in the global investment community, with prospects better than most of the developing peers. The sense of optimism about the future is more in India compared to most other countries.

On Moody’s rating he said, “It is interesting that many people are saying that credit rating agencies generally do not give proper credit to India, instead they give a lower credit. When Moody’s gave its latest rating, they said it had given a higher credit rate to India. Both the ruling and the Opposition parties have agreed that credit rating is wrong, but we don’t know what is right.”