Not rbi’s job to oppose government
As a political leadership that enjoys the confidence of the elected people’s representative forum, it has the authority of the people to take decisions in their welfare and on their behalf. If the political leadership makes mistakes in their choice of action and policy, the people will punish them. The government’s accountability is to the people. If the government of the day thinks certain currencies have to be demonetised, it is not for an institution with a narrowly defined mandate to thwart that policy choice.
This does not mean that the government can take decisions that violate the laws of the land: the courts would step in, if laws are violated. That being the case, the questions to be asked are different. Did the central bank advise the government as to how to go about demonetising two widely used notes in the least disruptive fashion?
Did it devise a plan of action that was optimal? Did it manage execution of the plan efficiently and coherently? All these questions can be answered only in the negative. So, it is inevitable that the Reserve Bank of India will face some flak. But it was not its job to have resisted demonetisation. Many people have tended to read into the Reserve Bank of India’s statement that demonetisation of Rs 500 and Rs 1,000 notes had been suggested to it by the government of India implications that probably are not warranted. The central bank has lost its autonomy and credibility affected, say some, including former Reserve Bank of India governor Yaga Venugopal Reddy. If the assumption is that the central bank should have resisted the move to demonetise high-denomination notes, that assumption is misplaced.
The Reserve Bank of India or any other central bank had the duty to carry out the will of the sovereign, as articulated by the duly elected government of the day. Its job is to carry out that mandate well, planning and implementing its execution in an optimal fashion. In the democratic system of government, the people are the sovereign and Parliament their representative forum. Parliamentary majority throws up the political leadership of the executive.
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