What do we mean by the autonomy of RBI?

economy : What-do-we-mean-by-the-autonomy-of-RBI?

Answer by Jai Parimi:

What is Autonomy?

How is RBI Autonomous?

  • RBI is currently a self governing institute which fixes it's targets and works under its rules. It is free from external control of government. So far, Central Government can only suggest RBI but RBI has the freedom to implement their suggestions.
  • The relation is analogous to the relation between a grown up child and a parent where a parent can advise his child to go in a path but, it is the child's decision ultimately which affects his life. 🙂
  • Losing autonomy is like having a parent who has decided engineering for you before you are born and forces the thought onto you.

Commission and recommendations:

  • RBI’s autonomy is not sanctioned by statute. The RBI can only be as autonomous as the government wants it to be.
  • Over the years, as the RBI established a track record of performance, governments have found it sensible to confer a large degree of autonomy on the RBI. Governors, in turn, have understood that having the political authority on board, to the extent possible, was crucial. This was an informal arrangement.
  • In March 2013, the Financial Sector Legislative Reforms Commission (FSLRC) headed by Justice B.N. Srikrishna proposed the creation of a Monetary Policy Committee (MPC) for deciding monetary policy.
  • If this committee is formed, RBI has to work in line with the targets set by the commission rather than fixing it's own targets. That way it loses its freedom. 🙂

Source: The limits of autonomy on RBI

What do we mean by the autonomy of RBI?


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