Raghuram Rajan says RBI is in talks with govt on keeping its independence. Reserve Bank of India Governor Raghuram Rajan, who had earlier trashed the recommendations of the Financial Sector Legislative Reforms Commission (FSLRC), said the apex bank is in discussions with the government on retaining its independence. After his predecessor D Subba Rao expressed reservations over the FSLRC recommendations, implementation of which could effectively curb the RBIs clout, Rajan was explicit on his views on the commissions proposals pertaining to regulatory functions. Rajan had termed the recommendations schizophrenic and argued that implementation of them could turn the RBI into a paper tiger. While appreciating the governments farsighted move on improving the standards of monetary policy framework aimed at making objectives of the central bank more expressive, Rajan on Thursday said the RBI is discussing with the government on how to determine the process. The central banks objectives include an inflation band, financial stability and growth. Who appoints the members of the monetary policy committee? What is their term? What is the term of the management of the Reserve Bank? How do you ensure there is enough independence that the targets can be met but at the same time the central bank is doing what is determined by the Parliament? These are the issues that are being discussed, Rajan said at the Indian School of Business in Hyderabad, responding to the queries of management students. He, however, was quick to add: I dont think it immediately means that there is a conflict between the Reserve Bank and the government or our independence is under threat. There are issues that need to be worked out. According to Rajan, the government and Reserve Bank currently enjoy free, frank and cordial relationship and are discussing the issues in the best interest of the country. he governor said the apex bank is also discussing with the government on the issue of the number of institutional structures that improve the functioning of the financial sector. We really need a financial resolution authority so that we can close down financial institutions that get into problems without necessarily merging them and taking out the losses and feeding them back into the system. Favouring both fiscal and monetary measures to contain inflation and achieve growth targets, the governor said: Most of the bond market participants and analysts are convinced that we will hit the 6% (growth) target by end of next year. So I think both (fiscal and monetary measures) are necessary and one cannot function without the other. The central bank cannot do its job if the government does not cooperate and vice versa. Rajan said Prime Minister Narendra Modi has an ambitious agenda for the country and the level of expectations is very high and we will have to match it. Favouring major reforms in the system to put the economy back on track, the RBI Governor said: We are hoping 5.5% (growth) this year, may be little more. Then in the next year we will go into sixes and hopefully sevens the year after. However, to sustain the growth and take it to higher levels, the country needs fundamental reforms in the system, which is what the government is focussing on - things like how to improve the framework for doing business, how to make it easier for you to go out and become entrepreneur. We need to make it easy for business to grow, that means finance, regulations and skilled labour. I think the government is working on all these fronts. In the backdrop of these government initiatives, Rajan said: I dont think why we cannot over time reach double digits (of growth). Insisting on the need to have specialists in project restructuring to put distressed assets back on track, Rajan said the specialists can bring in new money needed to complete the projects and provide equity funds. We are open for more asset reconstruction companies to come in and we are going to open the licensing process for new asset reconstruction companies to help us bring down the levels of distressed assets.
Posted on: Fri, 17 Oct 2014 15:17:10 +0000
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