Mumbai, Oct. 2: Former Reserve Bank of India (RBI) governor, Bimal Jalan today stressed on the significance of harmony between a central bank and the government, stating that autonomy or independence to an apex bank will only work if it is established by convention and not by statute.
Jalan, who is now a member of the Rajya Sabha, was addressing a gathering of leading bankers and industrialists organised by the Confederation of Indian Industry to felicitate him.
Citing the example of countries like the UK and New Zealand where independence to a central bank is granted by a statute, Jalan said that though he is in favour of such an autonomy, it will only work if set by convention. “In some countries, the role of the apex bank and the government are independent. I am for the so-called autonomy. But, I also believe that it will work if established by convention rather than by statute, especially in emerging countries.”
If harmony is lacking, the ability to face problems would diminish significantly, he said, while adding that the RBI is responsible to Parliament through the government.
However, he was quick to add that in India there has been an excellent co-ordination and harmony between the central bank and the government, despite the differences. “Both of us had differences, but those were resolved by consensus,” he said.
An example of this co-ordination is the borrowing programme, where the size of the programme is decided by Centre and the timing by the RBI.
The former governor also mooted the need to develop policies based on the specific needs of the country rather than emulating the industrialised nations.