Towards an Independent Federal Reserve Bank of India

The Reserve Bank of India alone has remained inexplicably immune to reform and the global trend of legal independence and modernisation of central banks. It has dwindled to a quasifiscal agency with a consequent loss of status and influence. India has political and fiscal federalism, but lacks monetary federalism. The case for an independent RBI derives from the doctrine of separation of powers both to close India's democratic deficit and to insulate monetary policy from politics. Independence implies accountability, transparency and the creation of an executive (not advisory) monetary policy committee; revamping its inflated and overly hierarchical organisation; and divestiture of supervisory and quasi-fiscal functions. The agenda calls for an early creation of a high-powered commission to help legislate a constitutionally independent federal RBI.