The Reserve Bank of India completed 85 years of its establishment. It was, on April 1, 1935, India's apex bank was created in accordance with the RBI act 1935. Since then it has played an important role in regulating India's banking sector and the country's development. The RBI further mandated with regulating India's commercial banks and has some control over nations' non-banking finance companies. It also regulates the money supply and credit in India's financial system. Until 2016, when the monetary policy committee (MPC) was established, it controlled monetary policy in India. Here' a look at RBI's journey for the last eight and a half-decade.
Fight for autonomy
After the British left India, the RBI was nationalized in 1949 by then Prime Minister. The RBI Governor and country's finance ministers had a history of spat which started with Sir Benegal Rama Rau, the second RBI governor of post-Independence and India's then FM TT Krishnamachari. The issue was resolved with Nehru saying the RBI comes under the central government's direction.
More recently, friction is between RBI governor Yaga Venugopal Reddy and P Chidamabaram. The resignation of Raghuram Rajan and Urjit Patel and eventually the selection of Shaktikant Das, the Economic Affairs Secretary in the Modi government cleared all the doubts showing who the real BOSS is.
Transition towards 'liberal' bank
The inflation shocks of the 1970s and the country's financial crises compelled the RBI to take a more liberal approach. The RBI worked hand in hand with the central government with the duo of Narshima Rao and then Governor Manmohan Singh opening up the Indian economy. After the 1990s and 2000s, the bank played its central role in managing the monetary policy of the country.
RBI in recent times
The role of RBI in recent times has come under the scanner for multiple reasons. The unceremonious exit of the world's renowned Raghuram Rajan as its governor in 2016 raised eyebrows on the intention of the government to give autonomy to the central bank.
Further, the decision to demonetize Rs. 1000 and Rs. 500 came under severe criticism from global economists. Further, its decision to handover Rs.1.76 lakh crore from the RBI's reserves to the Modi government has also questioned its autonomy.
Nowadays, its role has just limited to Inflation targeting.