Balance of power, in the balance

Any attempt by the Centre to override the RBI Governor using the RBI Act would be ill-advised
The role of the Board of Directors of the Reserve Bank of India (RBI) and its powers vis-à-vis the RBI Governor have come into focus in the ongoing tussle between the Centre and the central bank. The Centre has hinted that it is examining the option of using the powers of the RBI Board to override the Governor. There are several questions that arise from this unprecedented attempt by the Centre to use powers under the Reserve Bank of India Act, 1934. The most important of these is: Where does the balance of power lie between the Governor and the board? What is the legal position of the board in relation to the Governor? Does the latter draw his powers from the board as in a corporate set-up? Can the board give directions to the Governor on issues of policy and management of the central bank? Before we get to answering these, let’s get this out of the way first. The relationship between the board and the Governor is not comparable to a corporate set-up where the managing director (the corporate equivalent of the Governor) reports to the board and draws his powers from it. While a managing director is an agent of the board in a company, in the RBI, the Governor is not. He draws his powers from the RBI Act and not from the Board of Directors. He is appointed by the Prime Minister in consultation with the Finance Minister. The RBI Board has no say whatsoever in his appointment. In a company, the board of directors chooses one of its own to be appointed as the managing director. In the RBI, the Governor secures board membership only after he is appointed to the post. It is, thus, wrong to compare a corporate board to the RBI’s and suggest that the Governor is subservient to it. The RBI Board has several representatives from industry. The present board includes N. Chandrasekaran, Chairman of Tata Sons, Dilip Shanghvi, MD of Sun Pharma, and Manish Sabharwal, founder of Teamlease. There will be a conflict of interest if industrialists are members of committees that run the affairs of the monetary authority of the country (and we are not for a moment suggesting that they will behave in any manner favourable to their interests). Second, there is a good reason why the RBI has been kept at arm’s length from the Centre and bestowed with a certain independence. That is because the Centre is the spender and the RBI is the creator of money, and there has to be a natural separation between the two. The Centre arming itself with powers to run the RBI runs afoul of this precept. Whichever way we look at it, such a move by the Centre would be ill-advised and will take its relations with the monetary authority into uncharted territory. There will be no winners in this dangerous game. Enough dirty linen has been washed in public in the past month and it is time for the Centre and the RBI to behave like the mature entities that they are, uphold time-tested conventions, and act with mutual respect and a spirit of accommodation. The board meeting today, November 19, will set a crucial precedent in the economic history of India, and one can only hope that it will be the right one.
Source :  https://www.thehindu.com/todays-paper/tp-opinion/balance-of-power-in-the-balance/article25533921.ece

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