Latest Expert Exchange Queries

GST Demo Service software link: https://ims.go2customer.com
Username: demouser Password: demopass
Get your inventory and invoicing software GST Ready from Binarysoft info@binarysoft.com
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
 
 
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing | GST - Goods and Services Tax
 
 
 
 
Popular Search: articles on VAT and GST in India :: ACCOUNTING STANDARD :: Central Excise rule to resale the machines to a new company :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: VAT Audit :: VAT RATES :: ARTICLES ON INPUT TAX CREDIT IN VAT :: cpt :: due date for vat payment :: ACCOUNTING STANDARDS :: list of goods taxed at 4% :: TAX RATES - GOODS TAXABLE @ 4% :: TDS :: empanelment :: form 3cd
 
 
Latest Circulars »
 RBI to regulate peer-to-peer lending firms
  Export Data Processing and Monitoring System (EDPMS) Issuance of Electronic Bank Realisation Certificate (eBRC)
 Export Data Processing and Monitoring System (EDPMS) Issuance of Electronic Bank Realisation Certificate (eBRC)
 Auction for Sale (Re-issue) of Government Stock (GS)
 RBI-Auction of Government of India Dated Securities September 18, 2017
 RBI releases Handbook of Statistics on the Indian Economy 2016-17
 Sources of Variation in Foreign Exchange Reserves in India during April-June 2017
 Inclusion of “Emirates NBD Bank (P.J.S.C)” in the Second Schedule to the Reserve Bank of India Act, 1934
  Master Circular on Conduct of Government Business by Agency Banks - Payment of Agency Commission
 Shri Rajiv Kumar, Secretary, Department of Financial Services, nominated on RBI Central Board
 RBI-Monthly Bulletin for September 2017

RBI Governor argues for Independent Central Bank for Macroeconomic Stability of the Country
September, 05th 2016

In his last public speech as the RBI Governor at St. Stephen's College, New Delhi on September 3, 2016, Dr. Raghuram G. Rajan explained why central banking was not as easy as it appeared - just raising or cutting interest rates - and why it needed decisions, sometimes unpopular or hard-to-explain ones, to be made under conditions of extreme uncertainty and argued in favour of having an independent central bank.

The central bank governor has to make difficult policy choices often in the face of uncertainties after weighing the alternatives as best as one can. He cited the example of 2013, when due to weak macro fundamentals the rupee tumbled and it was necessary to get back the confidence of international investors and how he, who had just taken over as the Governor of the Reserve Bank, had to decide on introducing the FCNR(B) scheme in the midst of uncertainties. That the decision proved to be beneficial for the country, the Reserve Bank and the banks, taught him that "Policy making invariably involves taking measured risks in the face of uncertainty." He then made out a case for India to have a strong and independent central bank so that it could ensure macroeconomic stability.

It is for taking complex decisions - often difficult for the common citizens to understand - that the central banks should be independent and should be able to say 'no' to seemingly attractive proposals, he argued but added that at the same time, it also cannot become free of all constraints. "It has to work under a framework set by the Government," he said. In his view, "Frameworks reduce the space for differences" and it was important that the constitutional authorities clearly outlined the central bank's responsibilities.

He gave two examples - a framework for inflation objective and a risk management framework for RBI that indicated the level of equity the RBI needed, given the risks it faced, to be adopted by the RBI Board. "The RBI did not have the luxury of economic inconsistency," he said, be it interest rates, exchange rate, pushing banks to clean up or paying surplus generated by it to the government. In a poor country like India where so many people lived at the margin, the role of the central bank was to ensure that growth did not exceed the country's potential, adopting prudential policies that reduce the risk, and building sufficient buffers that the country was protected against shocks. The Governor also explained the economic rationale of why the RBI cannot pay special dividend - in addition to the entire surplus being paid to it for the last three years - to the government to be used for bank recapitalisation.

He explained that paying a special dividend over and above the surplus RBI generated, as had been suggested, was legally not possible. And even if it were legally possible, and even if the Board were convinced a higher dividend would not compromise the creditworthiness of the RBI, the RBI could not have paid it as it would defeat the very purpose of the RBI paying the surplus - to reduce government's market borrowings. He instead made out a case for transferring to the government the entire surplus of the RBI after retaining just enough buffers that were consistent with good central bank risk management practice. "Separately, the government could infuse capital into the banks. The two decisions need not be linked," he pointed out and further suggested that the Government should acknowledge its substantial equity position in the RBI and subtract it from its outstanding debt when it announces its net debt position. That would satisfy all concerned without monetary damage.

The Governor also argued for operational freedom of the central bank, "albeit invariably in consultation with the Finance Ministry" in matters relating to macroeconomic stability. "Multiple layers of scrutiny, especially by entities that do not have the technical understanding, will only hamper decision making," he said and suggested that instead, the government-appointed RBI Board, which included ex-officio government officials as well as government appointees, should continue to play its key oversight role. He pointed out in this context that at present all important RBI decisions including budgets, licenses, regulation, and supervision are either approved by the Board or one of its sub-committees and it was, therefore, important to quickly fill the vacancies in the RBI Board so that the full expertise and oversight of the Board could be utilised. In the matter of Governor's position in the hierarchy too, he said status quo should be maintained.

On communication, the Governor said that in a developing democracy such as India, the Governor also has to continuously make the case for the actions the central bank is taking, including the many structural reforms that were underway. Communication was as much about educating as it was about informing - be it with entrepreneurs and retail borrowers or pensioners or Parliamentarians, he said and added that public understanding could help ease the way for reforms, as well as increase support for policies. "The RBI Governor therefore has to explain again and again...and occasionally also warn about the dangers of certain courses of action or certain tendencies in the economy for growth and macroeconomic stability."

Alpana Killawala
Principal Adviser

Press Release: 2016-2017/589

 
 
Home | About Us | Terms and Conditions | Contact Us
Copyright 2017 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Application Management Solutions Application Management System Application Management Software System Application Management Development Application Management Software Development

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions