RBI Autonomy and the Indian Financial Sector

In the context of the worldwide trend towards greater independence for the central banks and the recent public pronouncements by the Governor of the Reserve Bank of India (RBI), there is now a strong possibility of the RBI being given more autonomy. This is likely to be accompanied by several changes in the operations of the RBI including a pruning of its peripheral functions. This paper by Samir K Barua and Jayanth R Varma argues that these changes would have momentous implications for the financial system as a whole. Portfolio managers would have to contend with a wider choice of securities, more frequent portfolio rebalancing and use of risk hedging mechanisms. Corporate finance managers would face increased complexities in decisions like financing mix, cash management, designing financial instruments, capital budgeting and management of exchange risk.