How should the Reserve Bank of India (RBI) be evaluated as it enters its 91st year? By how well it has discharged its legislative mandate of maintaining the financial stability of the country? By its perseverance in disciplining governments when they indulge in their natural tendency to spend more than they earn from taxes? Or in the way it has supervised the brood of banks under its charge? By its ability to be fleet-footed enough to cope with ever new challenges, especially but not only from new technologies?

On a scale of 10, over a 90-year period, the RBI would probably get 9.5. And there are excellent reasons why it can’t score a perfect ten — it’s scope for independent action is considerably circumscribed by the government. Before Independence, interest and exchange rate policies had to suit London’s economic imperatives and there was little the RBI could do about it. After Independence the compulsions of democratic politics have compelled the RBI to strive for what economists call constrained optima because there are always many conflicts of interest arising out of the dual control of the economy that the British bequeathed. The most important of such conflicts has been over interest rates because of the extensive cross-subsidisation by the commercial sector of the non-commercial sectors. Likewise, in the case of banking supervision, which ought not to have been thrust on an institution charged with maintaining monetary stability, the government ownership of nearly 30 banks with 70 per cent of the assets has made the RBI’s job very difficult. Do the banks pay heed to the owner or to their supervisor?

Whether dealing with regulation of banks or managing the country’s forex reserves and public debt, one quality that has stood RBI in good stead is its uncompromising conservatism. It is this conservatism that prevented India from falling prey to the US sub-prime crisis and the East Asian currency crisis. But going forward, with a new breed of fintech actors playing a key role in payments and lending, RBI will need to strike a balance between being a conservative regulator and nurturing innovations to further financial inclusion in credit, payments and credit evaluation. So far RBI has shown itself to be conflicted on this score. Its regulatory moves, such as barring digital lending apps from lending or assessing borrowers without the help of a regulated entity and barring credit lines on wallets, have been reactive rather than proactive.

Overall, however, whether it is institutional integrity or handling major economic crises, the RBI has done the country proud. It stands above all other institutions that help with the economic governance of the country. Its role was described best in 1933 by Montagu Norman, the all powerful governor of the Bank of England. When asked what the relationship of the RBI with the government should be he said it should be like a ‘Hindoo wife’ who advises but does not insist. He would have granted the RBI 10/10 for its performance over the last 90 years.