Autonomy of the Rbi

INTRODUCTION

With the recent framework enter between the central government and Reserve bank of India i.e. the establishment of Monetary Policy Committee (MPC) on the lines U.S., the Federal Open Markets Committee for establishment more effective mechanisms so as keep check on the inflation of a country. With the composition of the board of the MPC is still undecided between the government and the RBI there is ongoing debate about the MPC as a mechanism which will weaken or strengthened the autonomy of RBI. With the autonomy of the RBI is matter of concern in ongoing debate. Paper primarily focuses on role and functions of the Reserve Bank of India with special reference to its autonomy. The paper is divided into three parts, part 1 deal with autonomy of the RBI, part 2 deals its role and functions and part 3 deals with conclusions

Meaning

As per the dictionary meaning the word autonomy means free from the external control therefore, Autonomy of the central bank is referred to the extend it is free from the carrying out its functions independently from the executive and legislative control.

In the case of the European Central Bank (ECB), the independence of the central Bank is explained under

Article 7 of the Statute which says that: “When exercising the powers and carrying out the tasks and duties conferred on them by this Treaty and this Statute, neither the ECB, nor a national bank, nor any member of their decision-making bodies shall seek or take instructions from community institutions or bodies, from any government of a member state or from any other body.”

Importance of the autonomy of the central bank

McDonough believes that some degree of independence of the central bank is crucial “the greater the independence the central bank has, the less subject it is likely to be to short-term political pressures. Central banks under the direct day-to-day control of governments seem inevitably to be tempted to promote easy credit policies, particularly...