Autonomy must to better manage inflation

Maintaining that autonomy enhances the credibility of the central banks inflation management credentials,the RBI chief said,it is generally acknowledged that these coordination mechanisms,especially as between the government and the regulators,must function in ways that do not compromise the autonomy of the regulators. How these coordination mechanisms (FSDC and its sub-committee) will evolve and how much value they will add is yet too early to determine.

While FSDC is chaired by the Finance Minister,its to be assisted by a Sub-Committee to be chaired by the Governor of the RBI. This sub-committee has replaced the erstwhile high-level coordination committee on financial markets. The Government has held out a clear assurance that the setting up of the FSDC will not in any way erode the autonomy of the regulators, Subbarao reminded.

In terms of governance structure,the two-tier framework of FSDC and the sub-committee presents an interesting case,he said. The crisis has clearly demonstrated the need for explicit delineation of responsibilities for financial stability across agencies and an agreed protocol for coordination among such agencies. The crisis has at the same time brought forth the critical stake of the sovereign in ensuring financial stability the spillover costs in a crisis have to be borne by governments, he said at the SAARC Finance Governors symposium at Kumarakom in Kerala.

In the Indian context,the proposed structure attempts to strike a balance between the governments objective of ensuring financial stability to reduce the probability of a crisis and the operative arrangements involving the central bank and other regulators.