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2) The relationship between central banks and government is being debated around the world and India is no different. Discuss the issues involved and suggest what needs to be done?(250 words)

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Topic – Statutory, regulatory and various quasi-judicial bodies

2) The relationship between central banks and government is being debated around the world and India is no different. Discuss the issues involved and suggest what needs to be done?(250 words)

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Indian express

Why this question

The article bring out the fact that around the world, there has been a rearrangement of the roles of and relationships between governments and central banks. We are seeing this happen in our country too where the RBI and government, it appears, have had some disagreement about how to manage the economy. These articles will help you understand the issue in greater depth .

Key demand of the question

The question expects us to first discuss the global scenario with respect to relationship between government and central banks and explain how the situation in India is quite similar. Discuss the reason behind such tussle in the would in general and India in particular. Here we need to discuss issues surrounding independence of RBI, monetary policy framework agreement, need for accountability , issues or capital reserves. Finally, a fair and balanced opinion is to be provided as to what must be the way forward.

Structure of the answer

Introduction – Mention about the recent board meeting of RBI and how it has blown water over the heat generated in past few days.

Directive word

Discuss – This is an all-encompassing directive – you have to debate on paper by going through the details of the issues concerned by examining each one of them. You have to give reasons for both for and against arguments.

Body

  • Explain that the adjustment in relationship between the two entities is part of the debate happening around globally. Give examples of UK etc
  • Explain the issue in general – Central banks everywhere, from Turkey to the US, are under increasing pressure from the governments. While central bankers say that they need to be free from pressures from the governments and lobby groups to focus on their job of containing inflation and maintaining financial stability, their critics say that they are too secretive and have leaned in favour of big financial institutions over the interests of common citizens they are duty-bound to serve. Explain what is happening in India
  • Examine the micro reasons over which there is a disagreement and discuss what needs to be done to improve the situation and maintain market sentiment.

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