As the Reserve Bank of India (RBI) observes its ‘Platinum Jubilee’, it can certainly claim to belong to the league of leading central banks of the world. As it looks ahead to its future, there is a need for the nation to revisit the RBI Act and bring it up to date. Its introductory part refers to the fact that in view of the “present disorganisation of the monetary systems of the world, it is not possible to determine what will be suitable as a permanent basis for the Indian monetary system”. The objective is stated to be “to regulate the issue of Bank notes and the keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage”. Of course, international financial conditions are disturbed even now, but in a different manner. The reference to currency and the credit system needs to be enlarged to cover financial innovations and monetary stability should be supplemented by financial stability.
From about the middle of the 1980s “monetary stability” has come to be reinterpreted as the stability of inflation rate rather than prices, without any public debate. It was subtle without attracting public attention. Of course, many modifications were made to the Act from time to time, particularly to implement the recommendations of several commissions and committees. But they were all done in a piecemeal fashion with no comprehensive look at the Act as a whole.
Meanwhile, a number of countries, both developed (e.g. New Zealand) and developing (e.g. The Philippines), have enacted new legislation on their central banks. Some of them have made specific provisions for ensuring the autonomy of the central bank. In the light of all these developments, it is time for the government to appoint a high-powered commission to review the working of the RBI and come out with a model Bill, incorporating its recommendations.
A Seshan, via email
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