Dinesh Kamath's Editorial 'The Centre-RBI face-off' that was published in Newsband

The Centre-RBI face-off

There has been tensions over the last few months between the Reserve Bank of India and the Centre. There are three issues on which the Centre seems to have irked the RBI. It has refused to accept Governor Urjit Patel’s point that the RBI is hobbled by lack of adequate powers in regulating public sector banks. The second is the tussle over the RBI’s burgeoning reserves. The last is the attempt by the Centre to set up an independent payments regulator.

A certain amount of creative tension is systemically in-built given their different perspectives: one is short-term and political; the other is long-term and technical. Such tension is good for the economy.

The current row is definitely worrying given the backdrop of economic turmoil, globally and domestically. The Centre and the central bank must talk behind closed doors and resolve their differences as mature entities.

RBI has autonomy on fiscal policy. Government should not interfere in this policy sphere. Demonetisation in 2016 was such an interference. The country is paying heavily for that wrong step. The RBI should have prevented such a measure coming out boldly against it. RBI should act as a subordinate body of the Central Government. The government, on its part, should desist from using the RBI as a scapegoat.

Central government should consider that the RBI Members and representatives are not people elected; they are well qualified for their work but incursion by government on RBIs policy may affect the economy and it will be government itself which will raise the questions on its working; like whatever happening with HAL is the best example. So the government should decide their limit and work in the area where it can do better.

RBI, Deputy Governor speaking on a sensitive issue of policy, publicly is not a healthy sign for the nation and economy. Let the Governor and FM talk on any differences in a meeting.

Isn't this just another institution which the present regime is trying its best to bring it to its knees? We have seen the discontent in the Supreme Court, the meddling in the CBI, the Censor Board, the Universities .... and the list goes on and on. What next?

RBI is also setting up many rules and regulations of Banks including SBI. The honest and middle class account holders face irksome procedures and rules even though they put their money and want to withdraw them when they need. RBI should allow full Independence in such cases where there are Loans or repayments. The number of documents needed to open small trust accounts are ridiculous though we are told that RBI rules are like that.

Coming back to the point: "One is short-term and political; the other is long-term and technical": this distinction is known to both. But the political one with its agenda to do whatever it desires to do in the short window of five years is not always happy with rational decisions that seem to it to be a ' a spanner thrown in its spokes'. It tries to weaken the institution itself to get its fancies fulfilled. This is what we are seeing every day now. Let the technical one that has to accommodate the present one to the extent possible without affecting the nation in the long-term has the grace to withstand the onslaught!

The tussle between the Reserve Bank of India and the Union Government does not auger well for the economy. The autonomy of the apex Bank should not be curtailed and it should not work as pawn in the hands of the Finance Ministry. There should be healthy debate and discussions between the Reserve Bank and the Finance Ministry to sort out the vexed and contentious issues in the greater interest of the nation. The Deputy Governor's warning is timely and should be taken cognizance of at this juncture.