4) The RBI, the RBI board and the government must understand the limits to which they can push each other. Discuss. (250 words)

Topic– Important aspects of governance, transparency and accountability, e-governance-
applications, models, successes, limitations, and potential; citizens charters, transparency &
accountability and institutional and other measures.

4) The RBI, the RBI board and the government must understand the limits to which they can push each other. Discuss. (250 words)

The hindu

Why this question

The interrelationship between RBI, RBI board and government and the limits and scope of their power had been under scrutiny in recent days. This is a general trend being seen all over the world. The regulations government this and how to reconcile the scope of power of each needs to be understood.

Key demand of the question

The question expects us to discuss the relationship between the RBI and the government and between the RBI management and its board. Thereafter we need to discuss the issues and analyze their ramifications.

Directive word

Discuss –

Structure of the answer

Introduction – Explain the recent turn of events relating to RBI and government which has brought this issue in focus.

Body

• Discuss about section 7 of RBI Act – This section gives the government the right to issue directions to the RBI in public interest. Highlight how this section governs the relationship between RBI and government from a historical, economic and political perspective
• Explain about the recent change in the monetary policy framework setting up the Monetary Policy Committee and giving it full freedom to determine the policy rate is a giant step forward in terms of giving the RBI autonomy.
• Discuss about the relationship between the RBI management headed by the Governor and the board. Explain why the debate arose because of the contentious issues between the government and the RBI being referred to the board. The question that has been raised is whether the board as it is constituted today can discuss such issues and compel the Governor to act according to the majority view.

Conclusion – Give your view on the interrelationship between the three and discuss way forward.