Business Studies, asked by peter566242, 2 months ago

Independence of RBI has been a major subject of debate in India of late. A few

Governors resigned on this issue, as there was too much interference from the

government in deciding the policies of RBI. Do you agree/disagree on the question of

RBI deciding its own course of action while formulating macroeconomic policy of

country or should it listen to its political masters?

Answers

Answered by khushidavdurgapur

Explanation:

Conflicts between central banks and governments are embedded in the evolving discourse of every democracy. The recent discord between the Reserve Bank of India (RBI) and the Ministry of Finance (MoF) is neither the first nor likely to be the last. Institutionally, once a disagreement between the RBI and the MoF crosses the Rubicon, the government has the power to overrule the central bank’s decisions. Moreover, such a structure is not restricted to the RBI but applies to all regulators, whether financial or non-financial. In its law-making wisdom, Parliament has decided that since accountability rests with an elected government and not the expert official, so should powers. To argue otherwise will only be political rhetoric and will not stand the test of law. This paper makes the case that since the RBI’s most important monetary policy function has been protected by law through the setting up of the Monetary Policy Committee, all decisions beyond it fall within the realm of ‘accountability’, where the elected government has been enabled, again by law, to intervene when required. This is how it should be in any democracy.

Answered by Sanav1106

Conflicts between Reserve Bank of India and Government.

Conflicts between independent financial organizations and the government are a common thing in almost all democracies. They have been embedded and evolved in all the countries practicing democracy.
Differences and Discord between the Ministry of Finance which is under the control of the government and the Reserve Bank of India which is an independent institution that curates the financial policies of the nation have occurred many times. But once the disagreement crosses the Rubicon, The government by taking the superiority has the power to overrule the decision.
Not only in the case of the Central Bank but the government has the power to overrule the decision of all the other independent institutions.
The decision may lie in the hands of the Supreme Court and the policies and decisions taken and implemented are always accountable and have to be protected by law, by setting a special committee called as Monetary Policy Committee.

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