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    Talking Point: RBI’s autonomy under threat due to note ban policy

    Has the Reserve Bank of India (RBI) under its new governor, Urjit Patel, surrendered its hard-fought autonomy? Many experts feel so, particularly after the manner in which Prime Minister Narendra Modi’s government has handled the demonetisation drive.

    Talking Point: RBI’s autonomy under threat due to note ban policy
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    KC Chakrabarty, RBI?s former Deputy Governor

    New Delhi

    Former Prime Minister Manmohan Singh, also a former governor of the RBI and a finance minister, lamented in Parliament recently that constant modifications in the country’s banking system following demonetisation was not good for the country or the RBI. 

    “That reflects very poorly on the Prime Minister’s office, on the Finance Minister’s office and on the Reserve Bank of India,” he told the Rajya Sabha last month. “I’m very sorry the Reserve Bank of India has been exposed to this sort of criticism, which I think is fully justified.” 

    What is unclear in this whole exercise is how much say the country’s central bank – the apex monetary policy authority, established on April 1, 1935, following the enactment of the Reserve Bank of India Act, 1934 – had in the policy decision. 

    “The Centre said the RBI has recommended the demonetisation. I do not know whether the government has forced the RBI to ask or the RBI took the call on its own,” RBI’s former Deputy Governor KC Chakrabarty said. 

    “I’ll not be able to say (on RBI’s views being valued) unless the minutes of the board meet is shown,” he added, alluding to some interference by the government, since RBI’s position has always been against demonetisation. 

    “That was the consistent view of the Reserve Bank in the past,” Chakrabarty said. In a reply to a right-to-information query, the apex bank said that the decision to withdraw the legal tender character of the Rs 1,000 and Rs 500 notes was taken by the RBI board at 5.30 p.m. on November 8 – less than three hours before Modi announced it to the country. Overnight, Rs 15.44 lakh crore or 86 per cent of the currency in circulation was declared illegal. Norms were announced by the Prime Minister on how people could deal with such currency in their possession – which were subsequently changed on an almost daily basis. 

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