Answer of the day-RBI autonomy

What is the present status in India wrt RBI autonomy?. What changes should be made to make RBI more effective?

RBI is the central bank of India which facilitate banking system of the country. It is established in 1934 and works under the Banking Regulation Act,1949. 

Present Provision wrt Autonomy of RBI

1.Section 7 of Banking Regulation Act says “the central government may from time to time give such directions to the Bank as it may, after consultation with the Governor of the Bank, consider necessary in the public interest”. Thus RBI was never as autonomous a bank as we expect

2.Monetary Policy Committee--includes Government member as well as compare to earlier when monetary decision is taken solely by RBI. Though this might be a good practice as RBI is just one party of controlling inflation other party is government itself which is included in the process now

3.Financial Sector legislative Reform Commission which decide on financial issue and is headed by Finance Minister rather than RBI

4.There is a framework in place to take away debt management power to rbi to independent agency. Thus reducing RBI autonomy.

Following Changes can be made to make RBI more accountable

1.RBI governor can be made accountable to parliament, thus making them accountable to people and giving them otherwise autonomous status.This practice is followed in US

2.Fixing Governor tenure along with making him accountable to parliament

3.The government appointment RBI board, which includes ex-officio government officials as well as government appointees, should play oversite role rather theb various government department

4.Framework for dividend transfer from RBI to government should be there so that there can be rule based transfer

RBI plays an important role in maintaining the economy of the country. Thus its autonomy need to be maintain for the benefit of the country and also according to the need of present India