India’s central bank is one of its best institutions. It is also complicit in a government-borrowing binge

It is not the job of the central bank to enact policy to alleviate poverty.
Either you have no idea what you're talking about or you are just here to throw some mud at another India article.
"out of ivory tower of rich and means"
That sentence doesn't make sense in any language.

Such a great article, incisive and clear at the same time - a hall mark of The Economist.

The Reserve Bank of India has, when viewed historically too, stands up to the positive endorsement of TE.

1) In the post-war, post independent, austerity period of the late 1940s and early 1950s, India had so little foreign exchange that a drastic regime of Foregin Exchange Regulations were enacted by the Indian Parliament. Those Regulations were administered by the RBI.

Many features of those Regulations still remain, such as the non-convertibility of the Indian rupee freely.

RBI still adminsters the Foreign Exchange Management Act. It is a complex exercise, not as easy at all.

2) When Indira Gandi wanted to show her rivals in the Congress (Organisation) Party that she was more 'socialist' than they were, she NATIONALISED a number of India's leading private banks.

It was the RBI which carefully managed Indira's impetuous political razamma-dash, working out all the technical and financial details of what imperious Indira had flung at the nation.

Without the RBI's careful handling of that huge exercise, India's banking system and her economy would have bitten the dust.

3) The entry of foreign banks into India, after the 'liberaisation' of Narasimha Rao's government, was one more challenge to the RBI, in terms of working a restrictive foreign exchange regime and yet allow reasonable leeway for the foreign banks to operate in India.

4) Since 2004-5, 'Fake Indian currency notes' of denominations, Rs.1,000/- and Rs.500/-, printed in Pakistan have been smuggled into India in significant amounts.

The RBI has been isolating these notes and taking in the losses, even as it introduces new and special security markings in the Indian currency it prints. It hopes the Pakistan's ISI will not incur the expense in following suit.

I could go on a bit more. But readers may have got the general idea I am seeking to convey. Thanks.

It's a good thing that Mr. Raghuram Rajan is not India's central banker. He can't live without the IMF straitjacket or think outside the Chicago School box. No doubt, the RBI gets into too much detail when it comes to bank supervision. But, its conservative posture is what kept India out of danger. Banking is a conservative business, and the robustness of a banking system is not to be measured by the extent of innovative products; which, incidentally, did not a little to bring about many crises, not just in 2008. Despite much lesser sophistication and technology and much greater complexity in terms of population number, language, wealth levels, India's internal banking set-up is more efficient and less costly than the USA's. One wonders what the wunderkinds of Federal Reserve really have achieved.

What recession? That is a first-world and new-world problem.
Growth may have slowed in the "third world" but China will still grow at above 9% as opposed to 11% a couple years ago, and India will grow at above 7% as opposed to 9%.

Infrastruggle and demon-crazy. I'm sure your mum tells you you're very clever.

Do not arose the Wrath of the the Great and Powerful Wizard of OZ!

[Fire, Smoke, Roar of Explosions]

The Great OZ has Spoken!

...Pay no attention to the man behind the curtain.

Good article with interesting details and analysis

RBI has no direct impact on 85% of people in India.
They do not have a bank a/c.
http://in.rediff.com/money/2005/dec/01guest3.htm

Are you suggesting that until poverty in India is alleviated, no articles should be published anywhere on any other topic about India?
Or are you just trying to be nasty?

sad and angry indeed. a brazen misplacement of priority.

RBI should focus on the poverty of the bottom 600 million indians first, before focusing on the prosperity of the top 200 million indians, to whom most indian TE posters here belong.

indians of no means should by no means be cast out of RBI system of banking.

India is gotten a infrastruggle problem which hinder its development into matured demon-crazy country. Its IT and outsourcing centers cannot really help India in coming out of the recession.

‘It is not the job of the central bank to enact policy to alleviate poverty.'?

//that don’t make no sense. fighting inflation is one of many jobs of central banks related to anti-poverty, is it not?

not "out of ivory tower of rich and means" ?
//how about out of hellfire from those of richness and means?

‘mud’?
// nobody can mud or insult india except the dirt poor poverty itself. get your priority right india!

The number of private banks in India has increased over the last decade. 'Kotak Mahendra' and 'YES' Bank, may have joined a list of almost ten or more private ones that seem to report healthy profits.

In the Metros at least, 'citi bank' has many branches and many Singaporean banks have a presence too. Recently, China has opened branches.

Control of Inflation - I do not know if the government's failure to control the 'black money economy' and hoarding has any impact.

I would have thought RBI's remit is narrowed down to a few important but limited economic levers.

India's political class suffers from moral attention dis-order.So, the chance of warding off financial risk is very low.

Well-researched piece.
It is beyond doubt that the Reserve Bank of India's conservative and risk-averse policies helped India to not only survive the economic crisis, but also to lead the recovery. However, it may also be worth a thought that are these same policies responsible for slower development of securities markets, or would all these arguments in the favour of the RBI still hold true were there no economic crisis and the developed world didn't have to look up to India and China for a salvage.

It is true that the banking system is largely state owned, but the state-owned banks are not necessarily state-backed. The banking playing field is very level, is it not? In the last decade-and-half many loss-making state-owned banks have been merged with and folded into good performers like SBI.

This particular referee is in fact refereeing a family of international stars.

The secret of RBI's relative success is less due to its own competency and more due to the relative autonomy it has enjoyed under successive governments since the 90s and not being meddled in like Indira/VP/Rajiv did.

India is developing due to globalization viz FDI/FII/QIP/NRI/PIO investments (50% of govt's $311 billion budget).
https://www.cia.gov/library/publications/the-world-factbook/rankorder/21...

>{Deficit attention disorder}

Lip smacking delicious !

>{ONE of the perks of being governor of the Reserve Bank of India (RBI) is the use of a colonial bungalow on Carmichael Road}

You forgot to mention RBI headquarters. It is easily the most beautiful building in Mumbai.

>{RBI would still probably like to try; in December 2010 it cut the liquidity requirement from 25% to 24%. The trouble is, anything more dramatic might be seen as meddling in politics and could prompt a bond-market rout that endangers stability.}

Ultimately a central bank cannot be the state. What is the job of the state, only it can do. Courts/c-banks are at state's service, not it's masters. And the state is manned by the current administration, which is responsible for it's functioning for the time it exists. If the administration falters, c-banks cannot set it right, nor it is appropriate for them to do so. Converse is also true. If the state does a good job, c-bank honchos can only assist them else they risk being sidelined or sacked.

RBI is being prudent not to encroach on govt's territory and all c-banks shd emulate it.

Good news is India's Central Bank is one of its best instituitions and bad news is : it is also complicit in a government-borrowing binge.

But this applies equally to the USA and European Banking Machine which is said to have run out the steam of market confidence.

The Luxury Yatch of capitalism has collided with an iceberg of unknown size while RBI pulling every lever as if it is a flying machine for magnificient India.

RBI GOVERNOR SUBBARAO IS ONE OF THE BEST BUREAUCRATS INDIA IS NOW SHORT NOW. HE IS CONTROLLING THE INFLATION (ONLY MONEY SUPPLY), GOVERNMENT MINT (THREATS OF FAKE CURRENCY), BALANCE OF TRADE-FALLOUT ON RUPEE-USD VALUATIONS AND THE GROWING DEFICIT FINANCING ETC. HE IS DEFINITELY PROVING BETTER THAN CAMBRIDGE EDUCATED ECONOMIST PRIME MINISTER AND HARWARD EDUCATED ERSTWHILE FINANCE MINISTER. HE MUST ALSO BE THANKFUL TO THE INDIANS FOR THEIR AGE LONG SAVING HABITS WHO DEPOSIT IN BANKS AND YET KEEP AN EQUAL AMOUNT INVESTED IN PARALLEL ECONOMY OF REAL ESTATE AND BULLION MARKETS. THE GOVERNMENT MISERABLY FAILED TO MEET THE TAX-REVENUE TARGETS, INCREASED DIVIDEND INCOME AND THEN MEET THE DISINVESTMENT TARGETS. MR. RAO DOES MINCE WORDS IN TELLING THAT THE SUPPLY SIDE OF INFLATION-PROBLEM LIES WITH GOVERNMENT AND SO ALSO THE FISCAL DEFICIT. WITH SHRINKING GDP AND PRODUCTION, GOVERNMENT HAS LITTLE SCOPE TO GARNER MORE TAXES EXCEPT MINTING MORE BY SERVICE-TAX. THE CORRUPTION IS THERE AND THE P.M.IS MUTE. HIS POLITICAL WED-LOCKING WITH LEFT IS FURTHER DISASTROUS. PEOPLE EAGERLY AWAIT FOR A CHANGE AND YEARN FOR NARENDRA MODI JUST FOR PROSPERITY, WEALTH & FINANCE MANAGEMENT .

based on the things happening in the banking sector of developed nations i think RBI is one of the best in the world also