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1) What do you understand by RBI’s economic capital framework? Discuss whether RBI’s economic capital framework requires a fix?(250 words)

Topic-  Statutory, regulatory and various quasi-judicial bodies

1) What do you understand by RBI’s economic capital framework? Discuss whether RBI’s economic capital framework requires a fix?(250 words)

Timesofindia

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Why this question

RBI’s economic capital framework and the quantum of its reserves have been the source of much discussion in the past few days. Understanding what economic capital framework is and the entire debate surrounding it is important from the point of mains.

Key demand of the question

The first part of the question expects us to explain what economic capital framework is and what role does it play in the economy. Thereafter, we need to discuss the debate surrounding the level of reserves that RBI should maintain, and how this issue can be reconciled.

Directive word

Discuss – This is an all-encompassing directive – you have to debate on paper by going through the details of the issues concerned by examining each one of them. You have to give reasons for both for and against arguments.

Structure of the answer

Introduction – Bring out the context due to which the issue is in news

Body

  • Explain what economic capital framework is and how is it useful for the economy
  • Thereafter, bring out the debate surrounding capital framework and the amount of RBI’s reserves, whether there is a need for less prudence, and who should be the deciding factor. Compare the level of India’s reserves vis a vis other countries and whether this level of risk aversion is harmful for the economy.
  • Discuss the recommendations of economic survey regarding this
  • Suggest what the way forward can be such an independent committee which will suggest what the best course of action should be

Conclusion – give a fair and balanced view on the debate over economic capital framework and what the way forward should be to reconcile differences.

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