Answer to Question #199081 in Management for Peter Masih

Question

Independence of RBI has been a major subject of debate in India of late. A few

Governors resigned on this issue, as there was too much interference from the

government in deciding the policies of RBI. Do you agree/disagree on the question of

RBI deciding its own course of action while formulating macroeconomic policy of

country or should it listen to its political masters?

Answer 1

I agree that the RBI should listen to their political masters in formulating macroeconomic policy since they represent people. Their participation will significantly impact RBI's decision-making since they believe that the present practice ignores numerous important issues, such as a single-day default that turns loans into non-performing assets (NPA). Therefore, the political masters should participate in decision-making in the RBI as they are the people's representatives. The government cites that the governor and four deputy governors complete the quorum for some sub-committees, and no directors are required to present. Politicians are likely required to push for an easing of norms for loaning the Micro Small and Medium Enterprises (MSMEs) sector, relaxing the Prompt Corrective Action (PCA), and easing the lending of norms. As a result of the involvement of the politicians, some banks may derive out of the Principal component analysis (PCA) framework by the end of the present fiscal. I will, therefore, the political masters to involve in formulating the macroeconomic policy of a country.