Behind the curtain: How RBI navigates politics, pressure, and prudence

Economic Times

2 days ago

Agencies All you need is guv In 'Land of the Free, Conditions Apply' (ET Edit, June 3), Ateesh Tankha and Syagnik Banerjee dramatise RBI as a contemporary 'ancient Rome', issuing diktats with the flourish of a censor, revoking licences like tributes unpaid, and imposing deadlines as if chasing gladiators out of the Colosseum. The allusion is charming. But it's misleading.Modern-day policymaking, unlike politics or prose, does not reward theatre. In what is often a thankless vocation, RBI has displayed more institutional maturity than its critics seem willing to acknowledge.
No institution is perfect. Certainly not a central bank tasked with navigating turbulent crosswinds of economic aspiration, financial innovation, systemic risk and political expectation - all while remaining outwardly unflappable. But to consistently caricature every move of RBI borders on convenient fiction. And fiction, as it turns out, is often more profitable than fact. There is a well-monetised industry built around regulatory foreboding. For every regulation that induces participant discomfort, there are self-appointed oracles who promise clarity and solution - for a fee, of course. For every directional shift by RBI, whisper campaigns assure that 'a workaround is in the works'. The new SaaS - Solace as a Service - is one that one can subscribe to.No regulator is immune to occasional overcorrection. Retraction, when warranted, is not a sign of institutional weakness, or that of an industrial win. Discussion papers, feedback loops, closed-door dialogues, informal expert conversations, including with media editors, advisory committees - these have all been part of RBI's ecosystem for years. What has changed is the codification of that listening as a process. The market notion that regulation must emerge from consensus risks recasting prudential judgement as a democratic vote - an idea incompatible with the function of a central bank.While the original critique invoking the Roman censor may have intended to offer little more than a wry historical metaphor, one suspects it was also guided by a cleaner logic - the kind that aligns with Occam's razor, where the simplest explanation is often the most reliable.But the regulatory environment today cannot afford such parsimony. The backroom is crowded - with geopolitical expectations, domestic fiscal compulsions, global market volatility, lobbying by regulated entities and, yes, political winds that shift not by policy cycles but by election calendars. To expect a central bank to function in antiseptic detachment from such realities is to ask of it a purity no modern state can afford.Indeed, political pressure - of the visible and invisible kind - is not an intrusion into RBI's role. It is, in some sense, embedded in its existence. The RBI, like all regulators, ultimately derives its authority from the sovereign. It would be naive to presume that regulators can be immune to political dynamics when their legitimacy itself flows from the political architecture of the state. The point is to navigate it with integrity and institutional ballast.Which RBI has often demonstrated. In recent years, it has managed liquidity swings, calmed currency markets, enabled digital finance, handled sectoral crises, protected retail investors and regulated a diverse financial ecosystem from banks to fintechs. That India's financial system has stayed fundamentally stable through it all speaks to quiet but significant regulatory depth.
Financial regulation is not a customer service function but a systemic responsibility, and a public good. Many industry actors expect to be consulted as clients, not as constituents of a financial order. Part of the challenge is that good regulation is invisible by design. Financial stability is a negative outcome space. A crisis that never occurred is work well done. India does not operate in a textbook financial architecture. Our credit ecosystems are simultaneously formal and informal. Our capital markets are growing but not yet deep. Our digital infrastructure is far ahead of our enforcement capacity. But to ignore the necessity of strong, even pre-emptive regulation in such an environment is reckless. RBI moderates a sandbox, a living laboratory of scale, chaos, ambition and ingenuity. And it must do so while absorbing shocks, forecasting risks, managing moral hazard and stewarding trust.That does not mean RBI should be immune from critique. Far from it. All institutions benefit from external scrutiny, especially those that wield such far-reaching influence - especially when it does not have an appellate authority.'Fiat justitia ruat caelum' (Let justice be done though the heavens fall). RBI may not always please the forum, but its job is to do what is right for the system - even if the heavens protest. At the end of the day, RBI provides credibility, a far rarer commodity. Even it cannot mint it. And it continues to earn it. (Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.) Elevate your knowledge and leadership skills at a cost cheaper than your daily tea. The answer to companies not incurring capex may lie in stock markets
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