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RBI board should aim to be like Rahul Dravid, ‘sensible and thoughtful’: Raghuram Rajan

Wednesday, November 07, 2018

Amid mounting tension between the Reserve Bank and the finance ministry, former RBI governor Raghuram Rajan yesterday said the central bank is like a seat belt in a car, without which accidents can happen.

Pitching for respecting the institutional autonomy of the RBI, he said the central bank has the liberty to say no if the government pushes it to be lenient. Ahead of the November 19 meeting of RBI Board, he said the objective of the board is to protect the institution and not serve others' interests.

"The RBI is something like a seat belt. As a driver, the driver being the government, it has the possibility of not putting on a seat belt but of course if you do not put on your seat belt you get into an accident and the accident can be quite severe," he told CNBC TV18.

Historically, the relationship between the RBI and the government has been precisely this – the government wants to focus on improving growth and it does all it can within the limits set by the RBI which are based on financial stability.

"So, the government will push, will try and get the RBI to be more lenient," he said, adding the central bank would examine them in close details and in reference to risks to financial stability. "We (RBI) have responsibility for financial stability and therefore we have an authority to say no," he said.

"So, my sense is the objective of the board is to protect the institution, not to serve others' interest; it is to protect the health of the institution but also to provide wide, sensible advice. The aim of the board is to be Rahul Dravid -- sensible, thoughtful and not, with due respect, Navjot Sidhu," he said.

On the state of the economy, Rajan said the situation is "much better" on the inflation front, for which both the government and the RBI deserve credit. Also, India is growing faster than most other countries but there is a need to create jobs and there is "probably need (to do) somewhat more than where we are today.
 

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