ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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P S Rao’s article (“NABARD and RBI: A 30-Year Legacy Being Upturned”, EPW, 22 September 2012) has indeed made a strong case for the Government of India (GOI) not going forward with the amendments proposed by the National Bank for Agriculture and Rural Deve­lopment (Amendment) Bill, 2012 that would have the effect of eliminating, in one way or the other, the financial and operational links between the Reserve Bank of India (RBI) and National Bank for Agriculture and Rural Development (NABARD) and subverting the autonomy of NABARD’s board of directors by making its decisions subject to GOI approval. I would broadly endorse Rao’s conclusions, but for different reasons and in the context of financial sector reforms that is underway in India and the rest of the world, including in another sizeable economy, China.

RBI’s role in rural credit has already undergone important changes since the establishment of NABARD, with many of its day-to-day functions transferred to the latter. RBI’s residuary functions mainly include the sanctioning of a general line of credit to NABARD and annual allocations from its profits to the two statutory funds now maintained by NABARD. RBI, in its role as the central bank, remains active in the spheres of formulation of rural credit policy, follow-up on priority sector lending by commercial banks, and interaction with GOI and NABARD on issues concerning rural credit. It is expected that RBI would continue to play this role and not dilute it simply because it would no longer have an ownership interest in NABARD.

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