RBI autonomy has to be maintained, says former governor Bimal Jalan

RBI’s relationship with the government is a matter of coordination and it is too early to say how it will grow, says Bimal Jalan


RBI is a part of the economic system and there is always consultative process between the RBI and the government, Bimal Jalan said. Photo: Aniruddha Chowdhury/Mint
RBI is a part of the economic system and there is always consultative process between the RBI and the government, Bimal Jalan said. Photo: Aniruddha Chowdhury/Mint

New Delhi: A day after former Reserve Bank of India (RBI) governor Y.V. Reddy flagged “reputational risk” being faced by the central bank, another former governor Bimal Jalan on Tuesday said the central bank’s autonomy is fundamental and needs to be maintained.

“...the autonomy of the RBI—that is a very fundamental fact and we have to maintain it and I hope the government would give attention to that part also,” Jalan said in an interview to CNBC TV18. Reddy expressed regret on Monday that the institutional identity of RBI has been damaged and stressed that for central bank “reputational risk is worst risk”.

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Jalan said one would have to wait and see how the relationship between the government and RBI develops, which ultimately is a matter of coordination. “...it is a matter of consultative approach and it is too early to be able to say how it will grow in...autonomy of the RBI and autonomy is not what you call independence. RBI is a part of the economic system and there is always consultative process between the RBI and the government, but it is a process and when you talk about monetary policy—the autonomy of the RBI is that you can take very hard decisions,” he said.

Jalan was RBI Governor from 1997 to 2003 and was succeeded by Reddy. On the impact of demonetisation on growth, he said, “It is very difficult to go through the percentage points...but everybody agrees that there would be a decline in the rate of growth. How far it is due to demonetisation and how far it is the trend from 7.6 to 7.1, you have seen last year itself... Let us wait and see that is the best thing rather than forecasting at the moment.”

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When asked whether he would have advised the government to take such a big step, Jalan said: “It is a decision and whether a decision is right or wrong that can only be proved over a period of time. If the black money reduces, if the corruption reduces, certainly it is a worthwhile step although it has pained the not so well-of classes more.” However, he added that if the demonetisation decision leads to further administrative reforms, it would be a major gain.

The government had scrapped high value currency notes of Rs500 and Rs1000 from midnight of 8 November.

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