RBI’s been out of it so far in part because when Reddy took over, the central bank could boast, if it was so inclined, that interest rates were at a three-decade low. Bimal Jalan had finished a six-year term that engendered the home loan near-revolution. If RBI had been only doing what was necessary and unavoidable, its role may still have escaped public scrutiny, no matter the pain. But the central bank’s avoidable and costly judgment calls during Reddy’s tenure are directly related to the way it functions.

Hence the need to look at RBI now. The former RBI governor (September 1982 to January 1985) who’s now prime minister must give this imperative the weight it deserves. He can appoint the next governor but he can also initiate the process of taking a close look at RBI. This, Manmohan Singh can do without fearing interference from Marxists, regional parties, cabinet colleagues and Congress grandees claiming closeness to10 Janpath. The subject is not political enough in the de jure sense to attract “pro-people” spoilers. But, thanks mostly to home loans, RBI’s role is de facto a people issue. So it is easier to spin, and god knows the PM needs some positive spin. As an economist and an ex-RBI governor, Singh will bring special credibility in personally backing a reform of RBI.

Plus, and this is crucial, the intellectual ground is prepared for beginning a formal official reappraisal of the central bank.

There’s the officially commissioned Raghuram Rajan report that asks for RBI’s mandate to be defined in terms of inflation control. There are differently aligned but credible arguments on whether the policy-making establishment should arrive at a more sophisticated understanding of the growth-inflation trade off, recognising that for India to grow at rapid clip now is the most important public policy goal. There are equally credible arguments that some of RBI’s problems are the government’s fault; the executive has dumped too much on the central bank. There’s a report authored by Vijay Kelkar that argues, among other things, that some of RBI’s functions should be hived off. There’s no consensus on the big and small details of how a different RBI should look. But there’s an intellectual consensus and a need derived from ordinary people’s experiences — this is a rare meeting between these two strands of public debate — that RBI should look different.

... contd.