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4) The central bank policy has to be guided by financial markets rather than by a government headed by politicians with electoral compulsions. Comment in the light of recent RBI controversy.(250 words)

Topic– Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.

4) The central bank policy has to be guided by financial markets rather than by a government headed by politicians with electoral compulsions. Comment in the light of recent RBI controversy.(250 words)

Indianexpress

Why this question

The article discusses the intricacies and dilemmas faced by the RBI in the neoliberal regime. It also discusses the inability of interest rate policy as a tool for achieving the multiple and sometimes even contradictory goals.

Directive word

Comment- here we have to express our knowledge and understanding of the issue and form an overall opinion thereupon.  

Key demand of the question.

The question wants us to dig deeper into the ongoing RBI- Govt. controversy and express our opinion as to whether the RBI policy decisions should be simply guided by financial markets without any interference by the government. We have to form our opinion based on a proper discussion and presentation of facts, arguments.

Structure of the answer

Introduction– write a few introductory lines about the  recent controversy surrounding the RBI and mention sec 7 of the RBI act.

Body-

  1. Express your opinion as to why RBI policy should not be simply guided by the financial markets. E.g This is obviously an undemocratic position, for it amounts to saying that crucial decisions affecting people’s lives should be outside their sphere of intervention through the electoral process; It is also a dangerous position since financial markets are dominated by speculators. As Keynes had pointed out, not only is market incapable of distinguishing between enterprise and speculation, but speculators, far from being “bubbles on a steady stream of enterprise”, create instead a “whirlpool” upon which enterprise itself becomes a mere bubble. The livelihood of over a trillion people cannot be made “a by-product of the activities of a casino”
  2. Discuss why RBI policy should not be simply guided by the government. E.g This would not matter if the government itself was socially accountable through, for instance, being subject to parliamentary oversight; in that case, there would be some restraint on its using control over the central bank for furthering the interests of its crony capitalists. But, as we know, the government is refusing to divulge the contents of Raghuram Rajan’s note on major bank defaulters even to the Estimates Committee of Parliament etc.

Conclusion– based on your discussion, form a fair and a balanced conclusion on the given issue.