Does the report of Financial Sector Legislative Reforms Commission (FSLRC) seek to clip the powers of the Reserve Bank?
Four members of the FSLRC have put dissent notes opposing dilution of the powers of the RBI, especially on taking finance companies out from the RBI purview, government handling inflows and creation of debt management office.
On complaints from some quarters that the FSLRC proposals will give more powers to the finance ministry, BN Srikrishna chairman of the Financial Sector Legislative Reforms Commission (FSLRC), said, ?How can the finance ministry get more powers? There will be more autonomy for the RBI. Today, it depends on the personality of the Governor. Some Governors may be pliable, while some may be tough. The appointment of Governor also needs to be streamlined. The FM can?t say you do this and the RBI can?t say ?I got a call from the FM, so I?m doing it. Everything has to be in public domain.?
?The RBI is very much under the control of the government of India. The Centre can issue a policy directive, a policy directive is what the Centre says it is… All that won?t be possible now as everything has to be put in the public domain as per our proposal. How have we designed it? The RBI has to be given a medium-term objective. That will be done by a communication from the finance minister indicating the objectives, quanta and priorities, which will also be in public domain,? the former Supreme Court Judge told The Indian Express.
?If the RBI is unable to achieve certain results, the RBI can write a communication to the finance minister and say… because you did this, I couldn?t achieve the objectives,? he said. ?Is it not better that the people know what happens behind the curtain??
On the issue of autonomy of the RBI, he said, ?autonomy is already there. Autonomy doesn?t mean that I don?t want to talk to anybody… I am above everybody. Autonomy means within your sphere you are able to take decisions in accordance with law and your discretion but public also must know what?s happening. Autonomy and accountability are two sides of a coin and need to be balanced.?
Regarding the lack of transparency, Srikrishna said, ?This is exactly what?s to be stopped. That is, doing things behind closed doors. If the regulator has an issue, they must take it up with the government. If the regulator wants to frame a regulation, it must tell the public why it is doing it.?
?Today, do you know whether the RBI is going to decide this way or that way? We have no idea. Why should you not have an idea? Are you not entitled to know it? Today, everybody wants to act secretively. All that should stop. If that amounts clipping the powers, so be it but, the citizens will be empowered.
Srikrishna said that the monetary policy should be decided by a committee, and not a single individual.
?The committee will consist of external members and nominees of the government, except in emergent situation in which he can veto the decision but must justify it within specified period. Otherwise, whatever happens, it?s the RBI Governor who takes decisions. This is opposed to the democratic ethos. If there?s no consensus, there should be voting,? he said.
