In his last public speech before demitting office as the 23rd governor of Reserve Bank of India (RBI) on Saturday, Raghuram Rajan strongly batted for the autonomy and the independence of the Central Bank and said it should have the freedom to disagree with the most powerful people in the country.
"The Reserve Bank cannot just exist. Its ability to say 'no' has to be protected," Rajan told students of St.Stephen college in Delhi, adding: "There is a reason why Central Bank governors sit at the table along with the finance ministers in G-20 meetings."
Rajan also pitched for elevating the ranking of central bank chief saying "it is dangerous to have a de facto powerful position with low de jure status". He said the ranking of the RBI governor, currently at par with cabinet secretary, needed to be commensurate with his/her position as the most important technocrat in charge of economic policy in the country.
There is an informal understanding in India that the Governor has the room to make needed decisions. In the interests of macroeconomic stability, none of this should be changed, though if these issues are ever revisited, he said.
Rajan also complained that the responsibilities of RBI are not clearly defined. When the responsibilities of RBI are fuzzy, its actions can continuously be questioned, he said.
While RBI clearly has responsibility for the safety and soundness of credit institutions and the stability of the external account, there are some areas that are hazier. For example, with an inflation focused framework, the RBI's ability to be accommodative depends on fiscal prudence from the center and states, he said.
The RBI should be able to warn about the fiscal profligacy and such warnings should not be viewed as interfering with the legitimate decisions of the elected representatives of the people, Rajan said in a veiled attempt to the tell the government that RBI should be given the right to talk about fiscal prudence
Alluding to his previous speeches on intolerance, Rajan said, "Governor is also a role model for the youth in this country, and should therefore not duck the responsibility to urge them to follow the highest standards of citizenship when he or she is invited to speak directly to them."
"I tried to do the best job I could, without fear or favor. This is the last public speech I will give in India for a while – my successor has to take over the RBI's communication and I want to get out of his way. It has been an honour to work for the country," Rajan said.
