Former RBI governor Raghuram Rajan has come out in support of professionals leading the central bank, stating the regulator’s board should only ensure governance and not intervene in operational decisions. In an interview, he said, “The RBI's board is not an operational board. It is not led by professional supervisors or central bankers. These are all people from different walks of life whose main role is to play the wise people to advise, to counsel, to play a Rahul Dravid, to coach in some sense but not to make operational decisions and certainly not be loud like Navjot Sidhu.”
He pointed out at earlier members such as cooperative organiser Ela Bhatt and nuclear physicist Anil Kakodkar, saying they limited their role to giving direction. “I think that is the role of the board rather than to intervene in operational decisions and to substitute their judgment for the judgment of the professionals who actually manage the RBI.” The statement came at a time when there is friction between the top rung of the central bank and its board. The boards' behaviour changed after the government brought in new members, including Swadeshi ideologue S Gurumurthy and removed veteran banker Nachikent Mor.
Rajan said it is not practically possible for the government to meet its fiscal targets by getting the RBI to transfer a larger amount from its reserves. He said, “The RBI is not like any ordinary PSU, it actually prints the money which means that if I pay an extraordinary dividend, let's say Rs 3,00,00,000, it essentially means Rs 3,00,00,000 more of money is there in the capital markets and that is going to be inflationary.” He said that he hoped that people “back off from the cliff edge” and take the right lessons. “Both sides have to listen to each other, but there also has to be a respect of each one’s turf. What to my mind is most worrisome is the change in the role played by the RBI’s board in all this,” said Rajan.
According to Rajan, a good analogy is the central bank is a seat belt for the government, which is the driver. “The driver can decide whether to put on the seat belt or not. The driver may not put on the seat belt, but the seat belt is useful in times of a crash,” he said. “There are still very good people on those boards and I would hope that they would come together to bridge these differences and reduce some of the noise that is coming. I do not think India should have a breakdown in dialogue between the central bank and the government. I do not think it needs to happen. I do not think, if wiser minds prevail, it will happen,” said Rajan.
