THE assertion by Reserve Bank of India (RBI) Governor Mr. Shaktikanta Das that the central bank is autonomous but the Government is sovereign, puts the RBI role in perspective. This assertion puts at rest a controversy that occupied people’s mind for while about autonomy of the central bank. The controversy had cropped up after the RBI agreed to fill up Government coffers, something some quarters opposed the idea. Mr. Das’ clarification about the autonomy of the RBI under the sovereign umbrella of the Government explains things correctly. Actually, the controversy was absolutely unnecessary. When the Government found it completely impossible to run the show without any infusion of funds into the national economy, it approached the Reserve Bank to part with some of its reserve fund put aside for national emergencies as well as to offer a good enough cushion for bad days.
The Reserve Bank agreed to part with some funds that the Government is now using as booster to the economy. The good effect of those measures is now being witnessed almost on a daily basis as the Government announced relief and pumped a lot of money into the system. It was for such a day that the fund was meant to be used. Yet, some quarters kicked up a controversy about the extent of funds to be parted and the extent of money to be held back in reserve. Some old norms were extricated from files to be thrown at the RBI holding it responsible for an unacceptable decline in its strictness to tell the Government to stay within limits. This was an absurd conclusion that some quarters wished to slap on the RBI, suggesting that the central bank had lost its autonomy to the political Government’s insistence. Mr. Shaktikanta Das realised the importance of his clarification on the subject.
His explanation has removed the misunderstanding about an alleged loss of autonomy of the RBI. When the transfer of funds took place from the RBI to the Government, some sections of the media also sought to put out stories that talked about how some Directors of the central bank were opposed to the Government’s proposal and how there were serious dissensions in the RBI’s top ranks. It was also obvious from those reports that there was a lot of fudging aimed at misleading the public. It is from this angle that Mr. Shaktikanta Das has done well to put out his proper interpretation of the symbiotic relationship between the Government and the RBI.
The most important dimension of the assertion is that it seeks to explain where the two entities -- the Government and the RBI -- stand vis-a-vis each other in the overall scheme of things. The Reserve Bank is more than autonomous, but the Government is sovereign, meaning that it has the overall say in every matter as far as Indian Union is concerned, Mr. Das has said. This is logical and explains correctly how things are. Another gain is that Mr. Das has silenced the critics who wished to state that both, the Government and the RBI, had crossed their limits. That was a deliberate attempt to create a wrong impression. Mr. Das has done well to erase that impression. There is every reason to believe that there was no digression from the right path when the funds’ transfer took place. In fact, that move was necessary.