If RBI’s reserves are to be taken away from its direct control, they should be placed in a sovereign fund for investment
The manoeuvre against the Reserve Bank of India’s “unrealized gains" reminds public finance enthusiasts of James Tobin, an American economist who served on the Council of Economic Advisers and the Board of Governors of the Federal Reserve System. In 1974, the Nobel laureate economist said, “The trustees of endowed institutions are the guardians of the future against the claims of the present. Their task in managing the endowment is to preserve equity among generations." Those who advocate intergenerational equity in the arena of Indian public finance recall nostalgically the A.B. Vajpayee government’s courageous push to institutionalize its commitment to intergenerational equity by launching the National Pension System. The Vajpayee government moved from a system of defined pension benefits to one of defined contributions, putting India on the path of saving future generations from the burden of the present generation’s big government predilections.