Sunday, 18 November, 2018

Government To Continue Pressing RBI For Relaxing Norms, Funds

Capture RBI is Like Seat-Belt, Will Prevent Accident: Raghuram Rajan
Jean Garcia | 07 November, 2018, 15:39

Citing Section 7 of the RBI Act - an unprecedented move in the 80-year history of RBI - the government wants RBI Governor Urjit Patel to address three prime concerns.

Rajan's comments on the institutional autonomy of the RBI came just days after the Centre's Narendra Modi government was accused of trampling upon the freedom of the country's federal bank, Rajan said.

Moneylife's report said if the feud escalates further, there is "a good chance" Patel will resign at the RBI's next meeting, saying he was exhausted of the struggle with the government, and it was having a negative impact on his health.

While there appeared to be a partial truce last week when the government said it respected the autonomy of the Reserve Bank of India (RBI), the sources said the government will turn up the heat at the bank's central board of directors meeting on November 19. The RBI did not respond to an email seeking comment. Also, the surplus with RBI is a fiscally prudent measure, and if the government tries to tap into it, then in times of crisis, both the government and the RBI might face a crunch, the pain of which will ultimately be borne by us, the citizens.

The RBI has consistently pushed back against calls from the government to hand over more money from its reserves to help fund the fiscal deficit.

He said, "The role of the central bank is to be the wise counsel, like Dravid, not to make operational decisions and certainly not be loud like Navjot Sidhu". The framework was reportedly adopted in July 2017 "unilaterally" by the banking regulator and the government nominees on the board were absent from the meeting, said the Finance Ministry. "This kind of situation has never arisen before".

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The government wants the RBI to part with most of its profit as dividend.

Apart from Patel and his four deputies, there are 13 nominated directors on the RBI's board. "India can't have a breakdown in dialogue between Central Bank and government", the report added.

"The RBI is something like a seatbelt", Rajan, who is a professor at the University of Chicago Booth School of Business, told CNBC-TV18.

However, the RBI is not a department of the Finance Ministry and if the government does invoke section 7, maybe it should also state beforehand that any consequences of its directive will be the responsibility of the government and not the RBI.

"The RBI is something like a seat belt, the driver being the government. there could be a possibility of not putting on a seat belt". "If the RBI governor is forced to resign, it will be a huge setback for the economy".

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