CENTRAL BANK &

ECONOMY


Structure of the Presentation

Overview of the Indian Economy
Global evolution of central banking
Functions of a central bank
Research Strategy of a central bank
Evolution of the RBI
Functions of the RBI
Research in the RBI
1
Overview of Indian
Economy
2
Macroeconomic Indicators
3
Per cent
Overview of Indian
Economy
4
Indian Economic Performance
- An Evaluation
Strengths
Macro stability high savings/gradual
opening of the economy
Growth Acceleration
Fiscal Correction

Weakness
High public debt to GDP ratio
Financial Exclusion
5
Global Evolution of Central
Banking
There are 160 Central Banks
Central banks are essentially a nation state
phenomenon
Reasons for the origin of central banks
a) Issuer of currency,
b) Banker and lender to the government,
c) Regulator and supervisor of the banks and
financial entities. and
d) Lender of last resort


6
Functions of a Central Bank - 1

Monetary Policy Functions

Currency issue and management.
Maintaining internal value of currency.
Maintenance of external value of
currency.
Promotion of Growth
Communication Policy



7
Functions of a Central Bank - 2
Banker to the Banks

Lender of the last resort
Financial sector regulation and
supervision
Financial stability
Payment system functions

8
Functions of a Central Bank - 3
Development Functions

Sectoral policies
Development of financial market
Policy oriented research
Dissemination of information
Coordination and cooperation

9
Strategy of Research in a Central Bank -
1
The internal research staff needs to be
seen as the main channel of research of
the Central Bank.

There should be a unit specifically
charged with attempting to replicate
promising new findings, whether from
randomized trials, other evaluations, or
outside research.

10
Strategy of Research in a Central Bank - 2
Research should be endowed, to better
insulate it from the need to constantly defend
itself, and to ensure some independence from
the Managements preconceptions and
prejudices about best practice policies.

Researchers need to maintain checks and
balances to preserve its credibility. In
particular, it needs to resist the temptation to
make strong claims about preliminary and
controversial research that appears to support
policies that the Bank has historically
supported.

11
Strategy of Research in a Central Bank - 3
Quality control of the research program
needs regular reviews (in particular,
from external peer reviewers).

Researchers should focus on policy
needs and may not be driven too much
by the concerns of journal and their
referees.

12
Strategy of Research in a Central Bank - 4
Pay-scale and other perquisites (pecuniary
and non-pecuniary) of staff in the research
department should be well-aligned with the
institutions objective of doing top quality
research.

To improve quality of research, there
should be scope for occasional requests
outside the central bank for proposals in
areas or on specific topics where internal
research is weak.

13
Strategy of Research in a Central Bank - 5
The approval process for all research needs
better balance of academic quality and policy
relevance.
The Central Bank needs to ensure that more
of the researchers are as well-qualified in
statistical and econometric methods.
The Central Bank needs to undertake a
regular review of its data collection, archival,
and dissemination procedures.
14
Strategy of Research in a Central Bank - 6
The Central Bank should regularly
consider ways of enhancing the quality of
all its publications.

The Central Bank should foster closer
relationships with academic researchers,
including better visiting programs and
through conferences.
15
Evolution of a Central Bank in India -
1
1773 : General Bank in Bengal and Bihar
1914 : Chamberlain Commission
1921 : Imperial Bank of India
1926 : Hilton Young Commission
January 1927 : Bill to establish the RBI
1933 : a fresh Bill was introduced and
passed in 1934
16
Evolution of a Central Bank in India - 2


The RBI was inaugurated on April 1,
1935 and was nationalized on
January 1, 1949.

17
Main Functions of the RBI
Issue of currency
Banker to Government, including the
function of debt management
Banker to other banks
Other Functions
Policy oriented research
Dissemination of information
Developmental function



18
Policy Oriented Research
Research Departments in RBI
Operational Departments in RBI
Sponsored Research outside RBI
Regional offices
Incentivising Research
Review of Research
19
Research and RBI - 1
Department of Economic Analysis and Policy
Dates back to 1937
Reorganised in 1982
The Department acts as the economic
think-tank of the Bank
Mirrors different segments of the Economy
It is divided into five major units -
Internal finance;international finance; Money and
Prices; Production, capital markets and national
economic parameters; and General unit.


20
Research and RBI - 2
Department of Statistical Analysis and
Computer Systems
Dates back to 1937
Reorganised in 1982
Restructured in 1995
The major functions of the Department
collection, processing and dissemination of data
on banking, corporate and external sectors;
planning, designing and organising sample
surveys;
statistical research and
analytical studies as inputs towards policy
formulation and decision-support.

21
Research and RBI - 3
Setting up of Specialised Institutions
IGIDR, 1986
NIBM, 1969


Organising Memorial Lectures
22
Research and RBI - 4

DRG Studies and Projects

Endowment Scheme
Chairs
Conferences
LSE Observatory
23
Academics and RBI
Technical Advisory Committees
Members of the Central Board
Governors and Academic Research
Dissemination of Research
Publications
Annual : Annual Report, Report on Trend and
Progress of Banking, Report on Currency and
Finance, Handbook of Statistics, Banking Statistics.
Others : Macroeconomic and Monetary Developments,
Occasional Papers, Bulletin, WSS, Quarterly banking
Website
Policy announcements and circulars
Database on Indian Economy
Speeches
Reports
Regional Language
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