RBI :To get future ready, RBI re-drafts core purpose

BL : Naga Sridhar :HYDERABAD, NOVEMBER 11:2014

To retain autonomy, independence of views

  

 

In line with the changing demands of the economy, the Reserve Bank of India is re-thinking its role and function.

Contemplating a change in its core purpose, for the first time in its over 79 years of existence, the RBI is seeing a shift in its role from the bland “monetary stability” (in its current Preamble) to fostering “monetary and financial stability conducive to sustainable economic growth and to ensure the development of an efficient and inclusive financial system.”

Ready for approval

The draft of the new document re-stating the core purpose, values and vision — a copy of which is withBusinessLine — has been prepared by the senior management committee and will be sent to the central bank’s board for formal approval soon.

The purpose of the new vision, according to the RBI, is to delineate its strategic objectives and provide the framework and backdrop within and against which its policies will be formulated and the direction the bank would take.

The thinking at the RBI has been on these lines for quite some time now. During the central bank’s Platinum Jubilee celebrations in April 2010, the then Governor D Subbarao had said: “Even at the risk of being clichéd, let me say that at the Reserve Bank, we need to ‘think global and act local’. The idea is not to fight globalisation but to manage it to the country’s best advantage.’’

Thus, the draft document focuses on issues of current importance such as autonomy in functioning, fostering confidence in the internal and external value of the rupee, and achieving inclusive growth. The RBI appears to be significantly enlarging its scope even while sending a strong message of retaining its “independence of views”, and “valuing’’ independent judgment in formulating its policies.

This goes well beyond what the Preamble says now “...to regulate the issue of bank notes and 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.’’

Perfect timing

The vision document comes at a time the Government and the RBI have been discussing the central bank’s role. During a recent visit to the Indian School of Business here, RBI Governor Raghuram Rajan had said the central bank was discussing various issues with the Government, including fixing of inflation targets and implementation of the recommendations of the Financial Sector Legislature Reforms Committee on changes in the RBI’s role.