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Privatising the RBI

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In the article “Paranoia or Prudence? How Much Capital Is Enough for the RBI?” by Abhishek Anand, Josh Felman, Navneeraj Sharma, and Arvind Subramanian, published in EPW (8 December 2018), the authors have refrained from commenting on the adequacy of the Reserve Bank of India’s share capital, which has remained static at ₹ 50 million since the inception of the bank. I am not commenting on the content of this article, which I perceive as a pro-government note to take forward the idea that was mooted in the Economic Survey 2015–16, but withheld on being proved unwise by RBI’s erstwhile governor Raghuram Rajan. On this issue, no elucidation is needed beyond reading Rajan’s speech on “The Independence of the Central Bank,” delivered at St Stephen’s College in Delhi.

In a recent article, “Why Should the Government Own the RBI?,” in the Business Standard, dated 22 December 2018, T C A Srinivasa Raghavan opened a debate on the privatisation of the RBI which had fascinated me, especially his recommendation that the government should “in the interest of academic enquiry, commission a three-year project to examine the implications of re-privatising the RBI, to be led by Mr Rajan and Urjit Patel.” Raghavan’s apprehensions are largely due to past experiences of typical governmental lethargy for quick actions. However, some recent incidents have revealed that where there is a will, there is a way. One such, in the context of transforming the RBI to a “board-driven” professional entity, is the appointment of the new governor, Shaktikanta Das, in record time.

In tandem with such proactivity, the central government will need to issue an ordinance if it wants to privatise the RBI “in principle.” Some of the issues under this ordinance could be the reconstitution of the RBI’s central and local boards, determining the limit for the bank’s share capital—which could be between $500 billion and $1,000 billion—based on its shareholding pattern; determining the central and state banks and other non-banking financial entities share— which should be about 60% to 70%—in the reconstituted RBI; and redrafting the RBI Act in conformity with the existing Preamble of the RBI Act and role expectations from the central bank. The job of drafting such an ordinance should then be entrusted to an expert committee of the RBI’s past—Bimal Jalan, Rakesh Mohan, Raghuram Rajan and Urjit Patel—and present governors, without much delay.

M G Warrier

Thiruvananthapuram 

Updated On : 28th Dec, 2018

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