Delivering the A.D.Shroff Memorial Lecture in Mumbai recently, Viral Acharya, a Deputy Governor of RBI spoke at length about the importance of independent regulatory institutions. He emphasised that the risks of undermining the independence of a central bank are potentially catastrophic.
He classified economies as either value-enhancing or rent-extracting. Reduced independence of the central bank would promote rent-extraction and thus corrode economic efficiency.
Methods adopted to rob the central bank of its independence include a)appointment of non-technical people in senior management, b)erosion of statutory powers of the central bank, c)preference for discretionary policies over rules-based policies and d)establishment of parallel regulatory agencies.
In order to ensure independence from the government, the central bank needs sufficient reserves of funds and definite rules for apportionment of profits including transfer of profits to government.
Governments that do not favour independent central bank attract market wrath and ignite economic fire whereas others enjoy cheaper funds and support of international investors.
All these are unexceptionable motherhood statements. Acharya wants the government to desist from seeking higher share of profits (present and past) from RBI and interfering with central bank's guidelines on delinquent borrowers.
Is Acharya justified in expressing his angst in a public forum? Independence of RBI has to be reflected in the strength of RBI's Board of Directors to be unswayed by extraneous influences. Acharya as a member of RBI's Board ought to have taken the Board into confidence and it was for the Board to send a message to the government.
He classified economies as either value-enhancing or rent-extracting. Reduced independence of the central bank would promote rent-extraction and thus corrode economic efficiency.
Methods adopted to rob the central bank of its independence include a)appointment of non-technical people in senior management, b)erosion of statutory powers of the central bank, c)preference for discretionary policies over rules-based policies and d)establishment of parallel regulatory agencies.
In order to ensure independence from the government, the central bank needs sufficient reserves of funds and definite rules for apportionment of profits including transfer of profits to government.
Governments that do not favour independent central bank attract market wrath and ignite economic fire whereas others enjoy cheaper funds and support of international investors.
All these are unexceptionable motherhood statements. Acharya wants the government to desist from seeking higher share of profits (present and past) from RBI and interfering with central bank's guidelines on delinquent borrowers.
Is Acharya justified in expressing his angst in a public forum? Independence of RBI has to be reflected in the strength of RBI's Board of Directors to be unswayed by extraneous influences. Acharya as a member of RBI's Board ought to have taken the Board into confidence and it was for the Board to send a message to the government.
1 comment:
Agree.. is it present trend to speak out in public forum.
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