India would do well to go in for a home-grown economist with a world view of things — rather than an overseas-trained NRI economist with academic leanings — to fill the vacant post of RBI Deputy Governor dedicated for external economist, feel economy watchers.

This approach will be more meaningful, especially when fiscal/government dominance over monetary policy has been well established in the Indian context and even the era of fiscal dominance over banking regulation may also be well and truly upon us, they said.

The main problem with academic-oriented NRI economists holding such plum posts in the Reserve Bank of India (RBI) — as seen recently — is that they have been bold enough to come up with contrarian views and this has ruffled feathers of politicians. After all, they have nothing to lose as they can go back to their academic routines in the developed world if push comes to shove, economy watchers said.

Although no one would dare come out in the open and admit it, the fact is that Indian policy-making has in recent years been so fashioned on the premise that the country is still decoupled with the world.

The MPC framework

It may be recalled that the entire dynamics of monetary policy making went for a massive makeover ever since India adopted the monetary policy committee (MPC) system in 2016 to bring in transparency and accountability in fixing the country’s monetary policy. The MPC has six members — three officials of the central bank and three external members nominated by the government. The RBI Governor is the chairperson ex-officio of the committee. Decisions are taken by majority with the RBI Governor having the casting vote in case of a tie.

So one or two contrarian voices do not matter and will not affect the outcomes of the MPC. That has been the track record so far in almost three years.

Spate of exits

However, the spate of exits at the top-level of RBI — Urjit Patel as RBI Governor and recently Viral Acharya as RBI Deputy Governor — had led to apprehensions in several quarters that the autonomy of the central bank was under attack.

It is reckoned that the exit of Acharya, whose core function revolved around monetary policy, could bring an end to contrarian voices in the central bank.

A home-grown economist, who would not unnecessarily ruffle political feathers and bring contrarian views on monetary policy, is what the doctor orders for the RBI in the current scheme of things, said critics.

It all boils down to the point as to whether one sees the central bank as an extension of the government or as an independent authority that takes its own call on crucial monetary policy decisions as seen in some countries in the developed world. However, the latter is not how things have panned out in India, especially after the country has opted for the MPC system.

The unwritten phrase in the central bank rule book is that “loyalty to the government” is what matters the most.

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