SPEAKING at an event marking 90 years of the Reserve Bank of India (RBI), Prime Minister Narendra Modi noted that the institution had played a pivotal role in advancing the nation’s growth trajectory. He particularly applauded its transformation during the last ten years by becoming an engine of growth and reminded that the policies drafted today will shape the next decade of the RBI as it reaches its centenary year.
Emphasising the importance of coordination of monetary and fiscal policies in the GDP and the economy of the country, PM Modi recalled the 80-year celebration of RBI in 2014 and remembered the challenges and problems faced by the banking system of the country at that time. Today, despite recent global banking turmoil, Indian banks have remained strong and outperformed their global peers on growth and profitability. The Indian currency is trusted by foreign countries which are eager to use it for international trade. The strength of India’s financial institutions has enabled them to reach out to the last man in the line.
Though discussions related to the RBI are often limited to financial definitions and complex terminologies, PM Modi’s address encapsulated his vision of inclusive development. The work carried out at RBI directly makes an impact on the lives of common citizens. In the last 10 years, the Modi Government has highlighted the connect between the central bank, banking systems and beneficiaries; and gave the example of financial inclusion of the poor. As the RBI crosses this significant milestone, it presents an opportunity for the institution to not only reflect on its past achievements, but also to chart a course for the future.
The RBI started its operation in 1935 during the colonial rule. Before Independence, interest and exchange rate policies had to suit London’s economic imperatives and there was little the RBI could do about it. After Independence, the compulsions of democratic politics have compelled it to follow the whims of self-seeking politicians overlording the RBI resulting in conflict of interests.
The most important of such conflicts has been over interest rates because of the extensive cross-subsidisation by the commercial sector of the non-commercial sectors. The nationalisation of banks thrust regulation of 30 banks with 70 per cent of the assets on an institution that was meant for regulation of monetary policy, while the banks were virtually run by the political class, resulting in rampant corruption and steep rise in their NPAs. The situation was far from rosy when Modi took over as the PM in 2014.
Today, thanks to total coordination between the RBI and the Government, the PSBs are profitable and credit growth is at record level. India has emerged as the world’s fastest-growing economy. This transformation has been brought about by the clarity of policy, intentions and decisions to the professionals managing India’s central banking system. The RBI stands above all other institutions of the economic governance of the country.
It has created an example of the world based on its professionalism and commitment. It is ready for the resolutions of a Viksit Bharat as it approaches its centenary year.
PM Modi has shown the way forward to RBI at 90: Fix clear targets for the next ten years, prioritise fast-paced growth, and focus on trust and stability.
