Measuring central bank independence in India – a legal and behavioural case of Reserve Bank of India

Abstract

Purpose

This study attempts to quantify the degree of independence of Central Bank of India from both legal and behavioural contexts over the period 1990–1991 to 2018–2019, a period encompassing major developments in the operation and regulation of Reserve Bank of India (RBI).

Design/methodology/approach

We followed Jasmine et al. (2019) to calculate the magnitude of de jure independence of RBI and for de facto independence, “turnover rate (TOR) of CB governor” as proposed by Cukierman et al. (1992) is applied.

Findings

The results report that the legal autonomy of RBI increased specifically after the reforms and post formulation of Monetary Policy Committee (MPC). However, the actual independence of RBI remains more or less in line within the critical threshold limit of 0.2.

Practical implications

The study proposes effective implementation of laws and procedures designed to promote the independence of Central Bank of India imperative for an effective monetary operation along with a coordinated fiscal policy.

Originality/value

Targeted study of a particular central bank on its “independence” aspect in general and of the Reserve Bank of India in particular has not been attempted as on date. It is to this end that the present study contributes.

Peer review

The peer review history for this article is available at: https://publons.com/publon/10.1108/IJSE-02-2023-0098.