Source: The post is based on the article “The case for baby RBIs” published in the Business Standard on 28th January 2023.
Syllabus: GS3- Indian economy and mobilisation of resources
Relevance: Issues relating to monetary policy
News: The article explains the possibility of regional RBIs for India.
What is the need for regional RBIs in India?
The administration, the legislature, the judiciary, and a host of other institutions have state-level bodies. All also perform a regulatory role. This can be applied to India’s monetary authority, the RBI.
Despite its admirable competence and proven track record, the RBI is perhaps not working as expected. The task before it is simply too large. India has become very big on all economic parameters.
RBI doesn’t have the capacity to supervise an economy that’s growing so fast and becoming larger by the year.
There exists variation in regional inflation rates. The all-India inflation number is just too broad to be useful. It misses the considerable inter-state variation. It fails to capture things like urban-rural divergence within the same state.
The US has 12 Federal Reserve Banks, whose 24 branches constitute the Federal Reserve System. Each of these operates within the boundaries of its own designated area.
A key aspect of the US state Feds is to represent the region in the Federal Reserve System. For this, they possess a deep understanding of the regional economy.
RBI also has 25 regional offices. It is twice more than twice the number of the US Reserve Banks. But these aren’t independent entities. They are branches with a vertical hierarchy.