Topic– Indian Economy : Issues
5) The relationship between central banks and government is being debated around the world and India is no different. There should be a mechanism to make RBI and its governor accountable to the Parliament. Do you agree? Discuss .(250 words)
Why this question
With the resignation of RBI governor, the focus has shifted to the relationship between RBI and the government and the need for making RBI accountable to the parliament. This article discusses in detail the issues involved and hence this question.
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.
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.
Structure of the answer
Introduction – Mention about the resignation of RBI governor and the kind of issues that it has raised .
Body
- Highlight that across the world government are demanding greater accountability from their central banks. 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
- Discuss in detail the situation in India. Bring out the issues where there is a difference in opinion between RBI and government such as monetary policy committee , inflation vs growth management etc.
- Examine whether there is a need to make RBI more accountable to the parliament.
Conclusion – Give a fair and balanced opinion and discuss the way forward.
