Former RBI governor Raghuram Rajan stated there is a need to safeguard the “term and turf” of the central bank head by providing protection similar to those given to judges. Referring to the tensions between the RBI and the government, he said sometimes this conflict was on some silly status issue that ended up taking up a lot of time.
“I would say make it clear what is the realm over which RBI's sway holds and let us not bring that down,” he said. Rajan added that even if the tenure was protected, central bankers would still be exposed to other factors if they stood up to the government unless the turf was also defined. Speaking at the launch of his book 'I do What I Do' – a collection of his speeches and writings updated with comments, Rajan said past bureaucrats who occupied the governor's chair have taken a stand in favour of the central bank after taking charge.
“If you are subservient, you will not get respect from your staff, so people develop backbone very quickly,” Rajan said. He said public sector bank reform was an area where more work was required. He said the Centre needs to do more work on autonomy and have banks run by independent boards rather than taking direction from the government. “When we get there, we will have truly created the distance between the government and public sector banks. One indication we have achieved that will be the day we can close down the department of financial services.”
Rajan spoke in support of the institution of monetary policy committee (MPC), and ruled out the possibility of the government appointing its own people in the committee to influence policy. He said, “If RBI members in the MPC agree, they can outvote other members because the governor has the casting vote.”
