ECONOMY-RBI-PLATINUM JUBILEE

RBI celebrates Platinum Jubilee, President showers it with praise

By Gurdip Singh & Shabbir Ahmed

New Delhi, Jan 16 (UNI) Central Banks all over the world have come to play an increasingly important role in managing booms and busts of their economies, a phenomenon which has gained currency in recent times.The vicissitudes of an economy do not necessarily follow the behaviour of traditional business cycles. This, therefore, means that monetary policy has to be used with imagination, vision, foresight and innovatively.Central Banks, which have not done so, have landed their economies in a tight spot.For instance, during the recent global financial crisis in many economies, monetary policy ran out of steam. Their Central Banks, as if in panic, continuously lowered interest rates to prop their economies until it reached zero level.In such a situation, monetary policy can do little and the moot question is if the global recession gets deeper due to whatever reason, what would be the role of the monetary policy. The reliance in such a case would be exclusively on fiscal policy, without an aligned monetary policy.India's Central Bank--The Reserve Bank of India--has played a significant role for propelling growth and orderly management of the economy.India now is the second fastest growing economy in the world and appears to be headed towards becoming an economic powerhouse in future.Yet, monetary policy has come in for both commendation and scathing criticism.Its chief merit has been the cautious manner in which it managed the opening up of the capital account convertibility and the credible manner in which it handled the banking system during the recent phase of global slowdown and its consequential impact on theIndian economy. Both the Indian economy and its banking system have weathered the storm well.Nevertheless, it has been criticised for knee-jerk reactions as if acting in panic. It pushed down the growth rate by pressing the brakes too hard on interest rates, when faced with an inflationary spiral and then reversing the policy as soon as the global financialcrisis emerged on the horizon. India's main problem is now how to exit from the accommodative monetary policy. Being an important part of the global community, including the G-20, it has to go by the exhortions of the Group.With inflation again surfacing, it needs to move back to higher rates of interest and other monetary policy tightening.All said and done, the dice is loaded in favour of money tightening as inflation is an extremely sensitive area in Indian politics. Today marked the celebrations of its platinum jubilee. This is a time for introspection and looking back to what has been achieved and what else needs to be done. The event in this regard was held at the RBI's main office on Parliament Street which is in the heart of the capital city.Significantly, the event was led by none other than President Pratibha Patil. Mrs Patil commended the monetary policy role the Reserve Bank has played in "normal" and "critical times" since it came into existence, asking that it should now gear itself to achieving the task of financial inclusion.Mrs Patil said the Central Bank has acted in a ''highly'' responsible manner and contributed to providing support to the nation's economy.''The problems of the Reserve Bank, including during the recent crisis demonstrates that its experience of regulating monetary flows of the nation has lent to it a high status and given it deep maturity and prospective to deal with a range of complex economic issues,'' Ms Patil said.On the occasion, the President released a stamp commemorating the RBI's Platinum Jubilee.The RBI started functioning on April 1, 1935, making April 1, 2009 to March 31, 2010 its 75th year.The stamp depicts the iconic New Delhi building of the RBI and a representation of India's paper currency and coins.The stamp was released in the presence of Finance Minister Pranab Mukherjee, Minister of State for Communication and Information Technology Gurudas Kamal and Minister of State for Finance (Banking and Insurance) Namo Narain Meena.Three of the RBI former Governors were also present at the function, namely Dr C Rangarajan, Dr Bimal Jalan and Dr Y V Reddy.The President said priority of the banking system should be to strengthen itself significantly to support a "modern vibrant and inclusive economy."She said the banking system has grown considerably, but yet the challenge is to reach the unbanked areas, particularly in the rural sector.''I am confident that the Reserve Bank will provide an appropriate policy framework to achieve this objective. The Reserve Bank has been aligning the banking system to response to the needs and priorities of our developmental agenda. At this stage as part of the increased social responsibility, we need greater involvement of the banking system in the ongoing national development programmes,'' Mrs Patil said.The President said the Central Bank has adapted itself well to the changing requirements and has been able to innovate and implement policies that have enabled the country to achieve high growth rates.Speaking on the occasion, RBI Governor D Subbarao observed that ever since the RBI was established, there have been momentous changes in the economy.The paradigm shift in economic ideology, new perspectives on economic development, growing aspirations of the people, path-breaking financial innovations and major technological breakthrough have influenced the banking system, to which theReserve Bank has responded "in its own unique way." Mr Kamal said the postal stamp speaks off the cultural heritage of the nation.Mr Mukherjee lauded the role of the Central Bank in effectively tackling the impact on India of the global financial crisis.Mr Meena said apart from efficiently administering economic policy changes, the RBI has in a responsible manner taken care of the interests of its agents, including depositors, intermediaries, government business and external trade.All in all, while 75 years a relatively short span for an institution, the journey since RBI's establishment has been eventful, shaping not only its intellectual evolution but alsosecuring its permanent position in the economic policy space of the country. To achieve something may or may not be easy, but sustaining it and taking it forward is a formidable challenge. As India tackles its problems of growth and poverty, it's Central Bank will be called upon to manage growth, stability and achieve financial inclusion.