Undermining RBI bad for country

Undermining RBI bad for country
x
Highlights

Close on the heels of the Central Bureau of Investigation CBI, the countrys premier investigating agency, landing in unprecedented crisis thanks to the mishandling of the Modi government, yet another autonomous body hogged headlines for wrong reasons The Reserve Bank of India, the banking sector regulator, seems to be at odds with the government over latters interference in its functioning, w

Close on the heels of the Central Bureau of Investigation (CBI), the country's premier investigating agency, landing in unprecedented crisis thanks to the mishandling of the Modi government, yet another autonomous body hogged headlines for wrong reasons. The Reserve Bank of India, the banking sector regulator, seems to be at odds with the government over latter's interference in its functioning, which the apex’s senior officials and employees feel will undermine its autonomy.

The widening rift between RBI and the Centre came to the fore when RBI Deputy Governor Viral Acharya, while delivering A D Shroff Memorial Lecture in Mumbai last week, batted for ‘effective independence’ for the apex bank. He went to caution: ‘Governments that do not respect central bank's independence will sooner or later incur the wrath of financial markets, ignite economic fire and come to rue the day they undermined an important regulatory institution’. On Monday, RBI employees joined chorus with him and asked the Centre to stop nibbling at the apex bank’s independence.

In a letter, All India Reserve Bank Employees’ Association warned that undermining the central bank was a recipe for disaster. But all was well between RBI and the central government when current RBI Governor Urjit Patel assumed charge in September 2016. However, Patel received flak for blindly supporting the Modi government’s decision to demonetise high-value currency to stem black money in November that year. The demonetisation exercise which put entire country on cash tenterhooks for several months turned out to be flop show. As consequence, Patel’s capabilities came under scanner.

Thereafter, the RBI chief started asserting himself and did not yield to the Modi government’s efforts to cut key interest rates to spur economic growth. RBI and the government also had differences over the apex bank’s decision to ban all loan restructuring schemes and direct all the banks to treat loans as non-performing assets (NPAs) even in case of a one-day default. RBI did not budge from this move even after banks protested. The prompt corrective action (PCA) imposed by RBI on half of the public sector banks also did not go down well with the govt. Under this move, RBI imposed lending restrictions on the banks that figured in the PCA list.

But it’s time the central government realises that tinkering with RBI’s autonomy will be detrimental to the economy and country’s overall growth. The government should allow RBI to function independently and take a measured view on monetary policy and interest rates. It’s a well-established fact that central banks always try to keep inflationary pressures in check as higher inflation impacts the poor more.

However, going by the Finance Minister Arun Jaitley’s statement on Tuesday, the Modi government is likely to take the RBI head on. Hitting hard at RBI, Jaitley pointed out that the apex bank failed to check indiscriminate lending by banks between 2008 and 2014. As result, total bank credit jumped from Rs 18 lakh crore in 2008 to Rs 55 lakh crore in 2014, he said. Is this a strong signal that Patel’s days as RBI chief are numbered? Maybe, but Modi government can’t afford a change of guard at RBI when the General Elections are so close.

Show Full Article
Print Article
Next Story
More Stories
ADVERTISEMENT
ADVERTISEMENTS