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5) An independent central bank augurs well for a democratic politico-economy. Critically analyze in light of the alleged tussle between RBI and Central Govt?(250 words)

TopicStatutory, regulatory and various quasi-judicial bodies

5) An independent central bank augurs well for a democratic politico-economy. Critically analyze in light of the alleged tussle between RBI and Central Govt?(250 words)

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Why this question

The independence of institutions in a democracy is critical, and in recent days, the number of institutions such as CBI, RBI etc which have been having issues with interference in their functioning. Several reports and committees have suggested the need to maintain independence of central bank and the question expects you to discuss this.

Key demand of the question

The question expects us to bring out the reasons why independence of RBI is important, how far should RBI remain accountable to the Parliament and the people and how to resolve the dichotomy.

Directive word

Critically analyze – When asked to analyze, you  have to examine methodically the structure or nature of the topic by separating it into component parts and present them as a whole in a summary. When ‘critically’ is suffixed or prefixed to a directive, all you need to do is look at the good and bad of something and give a fair judgement.

Structure of the answer

Introduction – highlight the recent turn of events that has raised question marks over RBI’s independence.

Body

  • Discuss the role of Central Bank in economy and highlight the reasons why independence of central bank is critical for a country because of the major roles that it plays in countering inflation, preventing overheating of the economy, ensuring that the economy chugs along on a sustainable growth path etc
  • Discuss whether RBI or any central bank needs to be more accountable to the Parliament because RBI by nature will ignore the short term effects of their policies on the economy, the brunt of which has to be borne by the Parliament etc
  • Discuss how can this dichotomy be resolved . Highlight steps already taken such as MPC etc. Bring out some other suggestions as well.

Conclusion – Give a fair and balanced opinion and discuss way forward.