Money & Banking
How the RBI can be made more accountable— Part 3

The Reserve Bank must tender accountability in order to claim and enjoy autonomy from the government. Scale notwithstanding, lobbying, as a strategy, is also debatable

Accountability and ethics are very crucial to the survival of the financial sector and there is no doubt that there has been a systemic breakdown in the accountability and ethics globally across the financial sector in the last few years, leading to various forms of economic crisis, the effects of which we are still experiencing today! As all of you would agree, the integrity and credibility of financial markets and peoples’ trust in these markets is of paramount importance to the economic health of countries and India is no exception to this basic dictum. And therefore, without any doubt, the stability, soundness, safety and sustained prosperity of India’s financial system and larger economy rely fundamentally on the notions of fairness, transparency and accountability.


That said, while businesses and individuals in the financial sector have every right to pursue profits, at the same time they also have an intrinsic duty to produce services of high quality and need to conduct themselves fairly and with a high degree of transparency and accountability. However, this change can happen in real time only if the central bank (the Reserve Bank of India-RBI), which is the primary regulator of the financial sector, starts to facilitate this process of metamorphosis, which is required NOW, more than ever before! In other words, unless the RBI becomes the change that it wants to see on the ground in the financial sector, I am afraid that there will be very little action on the ground in terms of accountability!


So, what needs to be done to help move the RBI to a more accountable entity, from a long term perspective? We discuss this briefly in this final article in the series on RBI’s accountability!


First, there is the issue of legal accountability. Like in many other countries (USA and elsewhere), this would require the governor of the RBI to depose on a quarterly or semi-annual basis before a select committee of Hon Parliament such as the Hon Parliamentary Standing Committee on Finance (PSCF). Ideally, this deposition should follow the policy pronouncements made by the RBI. Being an unelected individual with such huge powers, the RBI governor must clearly be subject to Parliamentary Accountability, apart from the existing mechanisms. This would also mean to suggest that the RBI governor should therefore, be appointed by a Parliamentary committee and also be capable of being removed by them, if the situation so demands!


And, as noted in the media, Dr Duvvuri Subbarao, former governor of RBI, has argued for the same and I quote him,


The Reserve Bank must tender accountability in order to claim and enjoy autonomy from the government ... We must be conscious to the fact that we are unelected officials. And our mandate is that the government has appointed us. In order to claim, demand autonomy from the government, and to enjoy that autonomy, we must remember that we must tender accountability ... Reserve Bank must take its accountability seriously if it wants to be knowledge institution. ...The governor should go before a select committee of the Parliament  ... Just like it happens in US, UK, where the governor goes and gives evidence before the committee. In India too, the governor must go and tender accountability to members of Parliament select committee. That will be a good practice,"i


Second, while Parliamentary accountability is crucial, it cannot however be a substitute for basic accountability of the RBI to the non-executive members of the RBI board—especially, from an operational perspective. Here, I would like to humbly state that, these board members must become serious and active players in the immediate accountability of the RBI and the governor—that is why they are in the RBI board in the first place.


Let us face it! The RBI is a great example of a central bank that has, by and large, individual centric decision making. Whether it is monetary policy or any other function, the governor unquestionably reigns supreme.  An added factor makes the respected governor omnipresent and omnipotent at the RBI—the high level of discretion currently available to himii (which I am not questioning here).


Given the above, my overall point is simple: subject the presently available huge discretionary decision making powers with the RBI governor to normal checks and balances (of good governance) so as to facilitate greater accountability in decision making! Put differently, make the governor answerable to the non-executive members of the board of the RBI. In fact, at this basic level, the non-executive members of the RBI board must make the governor and RBI accountable for the use of the countries’ (scarce) resources, performance of regulatory and supervisory functions and the consequences of their actions.


Thus, as at Bank of New Zealand, what is needed is a framework of accountable autonomy where the governor (along with his team) are the primary decision-makers at the central bank and the Board exclusively engages in a monitoring role, evaluating the performance of the central bank and governor.


Third, facilitate the transition from being an individual centric decision maker (that most RBI governor’s have tended to be) to one who uses the collection potential and wisdom of RBI’s deputy governor’s, executive directors and others. This model of central banking is certainly not without merits and must be tried before it is dismissed. More importantly, this would certainly call for the creation of an empowered monetary policy committee along with voting rights—an advisory committee would not do here as it fixes no responsibility at all. Of course, this would also require that clear mandates and objectives exist (for the RBI) along with inflation and other targets. To reiterate, there is considerable evidence globally from the experience of central banks to show that group based collective decision making has led to better results and actions on the ground for the economy as compared to highly individualistic decision making that most of  our RBI governor’s have tended to engage in!iii


Fourth, the RBI must not only be audited by independent external auditors but more importantly, it should also be subject to audit by the CAG (The Comptroller and Auditor General). Look at the example of Bundesbank (Germany), which is a much cited example of a central bank in Europe. It has been subject to both independent external audits as well as oversight by the supreme audit authority (federal court of auditors). I fail to understand the logic that the RBI is different and therefore needs no CAG oversight. In fact, Parliamentary (and legal) accountability will be enhanced significantly, if and only if the RBI is subject to a CAG audit!


Last but not the least, there is so much lobbying that happens by firms and individuals in the financial services industry, and especially with the regulator. The RBI must be more transparent on such lobbying. Without any doubt, the right to voice our concerns and interests, and thereby attempt to influence public policy, is fundamental to any democracy like India. Many stakeholders including individuals, businesses, industry associations, advocacy organisations and other stakeholders have this fundamental right. However, lobbying is, indeed facing a crisis of legitimacy (e.g., the Radia tapes have revealed a lot). It is also very big business, especially for those representing these companies and (sometimes, even) foreign countries. Even the normally passionate civil society lobbying, has started to acquire significant commercial dimensions, often galvanising support for an extraordinary range of objectives. Without any doubt, the sheer numbers of lobbyists and the huge resources at their command perhaps, even threaten to overwhelm and/or co-opt public (minded) officials and the RBI is no exception to this trend—in fact, there was said to be significant lobbying by industry associations and others before, during and after the 2010 AP micro-finance crisis.


Another issue is relevant here. Scale notwithstanding, lobbying, as a strategy, is also debatable for several reasons. Many a time, sadly, the spirit of law is not observed. Further, sometimes undue influence falls into too few hands, or into the hands of those with very narrow commercial interests—I have pointed out in the earlier articles the present case where a single person holds seven (I had thought just six) very high profile positions related to the RBI. And of course, not to sound like a broken record, there are conflicts of interests in the recent financial inclusion and banking selection advisory committees appointed by the RBI.


All of the above in short, show that there is an accountability deficit, especially concerning lobbying with the financial sector regulator. Concrete action is therefore needed to make such lobbying more transparent and accountable and here again the buck stops with the RBI in the financial sector and it must show a clear actionable way forward—so that it is not only becomes accountable but is also perceived to be accountable, by the people at large!

ii There has been no lady Governor to the best of my knowledge

iii Those of you who are interested in getting more information on this, may contact me at and I would be most happy to share whatever evidence I have on hand from global experiences


You may also want to read…

Should the RBI be made more accountable? —Part1

How the RBI can be made more accountable – Part 2


(Ramesh S Arunachalam has over two decades of strong grass-roots and institutional experience in rural finance, MSME development, agriculture and rural livelihood systems, rural and urban development and urban poverty alleviation across Asia, Africa, North America and Europe. He has worked with national and state governments and multilateral agencies. His book—Indian Microfinance, The Way Forward—is the first authentic compendium on the history of microfinance in India and its possible future.)





3 years ago

There is no doubt or no second opinion to the fact that RBI should be made more accountable. The question is accountable to whom? There is no doubt that Parliament is supreme in our democracy. But is it really true? This is the only country in the world which is of course claims to be largest democracy, where even exports are done to the tune of several crores illegally. Every one knows how exports are done and what are formalities involved in exporting a product. Even such a complicated process is done illegally. If any one digs up a road he will be arrested by police, but illegal mining is very common.
So Let RBI be accountable to their conscious. The democracy has almost became a mockery here.

Yerram Raju Behara

3 years ago

This is a very good articulation on the need for greater accountability of the regulator in the financial sector to the Parliament. In democracy like ours the Parliament also needs to mature to a degree to insist on regulatory impact assessment of every new enactment on the subjects of the law at the beginning of the financial year. The first three days after the formal inaugural day that has some compulsory agenda should be devoted to such exercise. This will improve the governance, transparency and accountability.

V Rajendran

3 years ago

Very well written. Not undermining the capability of RBI especially how it has steered India with no scratch in the aftermath of US financial crisis, European economic crisis etc, it is quite reasonable that there has to be some accountability on the part of RBI like reporting to Parliamentary panel etc. When RBI itself looks up to US and the UK on many principles like Basel Conventions (now Basel III), Risk Management, NPA Management, BC-DR Study etc and tries to adopt those in the Indian scenario, why does it not suggest an accountability structure also, as it exists in the US, UK and Germany. It is a commendable gesture that even D Subba Rao has suggested it. V Rajendran, Chennai

Supreme Court asks Centre, States to have fixed tenure for bureaucrats

The apex court said Parliament must enact a law to regulate postings, transfers and disciplinary action against bureaucrats

The Supreme Court on Thursday, while suggesting fixed tenure for bureaucrats to insulate them from political interference and frequent transfers said these officers should not act on verbal orders given by political bosses.


Suggesting sweeping reforms in the functioning of bureaucracy, a bench headed by Justice KS Radhakrishnan said Parliament must enact a law to regulate postings, transfers and disciplinary action against bureaucrats.


Holding that much of the deterioration in bureaucracy is because of political interference, it said that civil servants should not act on verbal orders given by political executives and all actions must be taken by them on the basis of written communication.


The bench also comprising Justice PC Ghose said giving a fixed minimum tenure to a civil servant will not only promote professionalism and efficiency, but also good governance.


It asked the Centre and all State governments along with Union Territories to issue directions within three months for providing fixed tenure to civil servants.


The bench also said Civil Services Board should be constituted at the Centre and State-levels.


The verdict, which is on the line of apex court’s earlier order on police reforms for giving fixed tenure to senior police officers in Prakash Singh case, will go a long way in giving freedom and independence to the functioning of bureaucracy.


The judgement comes close on the heels of controversies surrounding Ashok Khemka, IAS officer of Haryana cadre over DLF—Robert Vadra land deal, and Durga Sakhti Nagpal, UP cadre IAS officer, who was targeted by the State government for alleged misconduct.


The apex court passed the verdict on a public interest litigation (PIL) filed by 83 retired bureaucrats including former Cabinet Secretary TSR Subramanian seeking its directions for insulating bureaucracy from political interference.


The petitioners also include former Indian Ambassador to the US Abid Hussain, former Chief Election Commissioner N Gopalaswami, former Election Commissioner TS Krishna Murthy, former IPS officer Ved Prakash Marwah, and former CBI directors Joginder Singh and DR Kaarthikeyan.


“This is a landmark judgement. Public servants are not private servants,” said Subramanian.


“Today faith in our Constitution has been reaffirmed...our faith in the strength of democracy has been reaffirmed because the highest court of the land has recognised the problems,” he said, adding “malgovernance affected people and quality of administration”.


Krishna Murthy lauded the verdict, saying “Good governance is critical to good quality democracy.


“Most of us have seen in our career how most of the transfers, promotions, postings and foreign assignments, all of them are decided on whimsical basis very often,” he said.


Singh said, “I am happy over this judgement but having said that I am aware that similar judgement was passed by the Supreme Court on September 20, 2006 on fixed tenure of police officers but all states are dilly-dallying.”


The PIL had alleged that at present, the system of transfers, postings, promotions, disciplinary action and other personnel matters pertaining to the members of civil services are ad-hoc and non-transparent.


“There is an urgent need to make the civil servants accountable, sensitive and responsive. If this is achieved, there will be across-the-spectrum benefits...


“Transfers are often used as instruments of reward and punishment, with officials being frequently transferred on the whims and caprices as well as the personal needs of local politicians and other vested interests. Officers, especially those in the All India Services serving in state governments, have no stability or security of tenure,” it had said.


The PIL had also said the civil servants at all levels should be given a minimum three-year fixed tenure on each post to foster functional freedom and independence.


Any premature transfer should specifically be authorised by the ‘civil service board/commission’ on specific circumstances to be brought out in writing, it had said.


At least four high-powered panels made recommendations for freeing the bureaucracy from political interference but the government had not taken any concrete step for implementation of the reforms suggested by them, it had said.


“Change of government invariably leads to new rounds of transfers as the incoming group of political leaders seeks to reward supporters and put its “own” staff in key positions.


“Moreover, the ‘transfer industry’ is backed by entrenched and powerful vested interests as frequent transfers generate huge amounts of black money for corrupt officials and politicians...,” it had said.


The PIL had said that there should be an independent, high-powered and statutory ‘civil services board’ in each state which should process proposals of postings and transfers.




3 years ago

India's most powerful labour union has protected its own. Who will protect the Aam Aadmi?

New York City to raise tobacco buying age to 21

Increasing the smoking age to 21 would help prevent another generation in the New York city from the ill health and shorter life expectancy that comes with smoking

The New York City has voted to increase the legal age to 21 for buying tobacco, including cigarettes and e-cigarettes, making it the first major city in the US to institute a minimum smoking age above 19 years.


The New York City Council adopted the ‘Tobacco 21’ Bill 35 to 10 to raise the legal age to buy tobacco, including cigarettes, electronic cigarettes, cigars and cigarillos to 21 from 18 in an effort to “save lives”.


The new law would come into effect six months after its signing by the Mayor.


“This is literally legislation that will save lives,” Council speaker Christine Quinn said.


New York City Mayor Michael Bloomberg welcomed the move saying increasing the smoking age to 21 would help “prevent another generation from the ill health and shorter life expectancy that comes with smoking.


“Between 2001 and 2011, New York city cut the proportion of public high school students who smoke by more than half. However, the decline in youth smoking in our city has stalled,” he said.


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