Govt vs RBI: Time for introspection

Govt vs RBI: Handle with dignity


Who benefits from Section 7?



My VIEW:
Time for introspection

This refers to the piece “Who benefits from Section 7?” by A K Bhattacharya (BS, New Delhi Diary, November 7) and Somasekhar Sundaresan’s article “GoI vs RBI: Handle with care" (BS, Without Contempt, November 8). The two articles together strongly suggest that the relationship issues between GoI and RBI emanating essentially from a dispute over the administration of monetary regulation and sharing of ‘income’ between the two are best resolved in-house, as a ‘divorce’ is no option as of now.
A lot has been debated about invoking Section 7 of RBI Act in the electronic and print media. I would go with Somasekhar Sundaresan’s view that provisions of Section 7 as they stand now will be useful only for supporting RBI Governor to handle a recalcitrant board, in the unlikely event of his seeking such a support from GoI.
Though GoI never got the adequacy of the capital and reserves of RBI examined by experts since the inception of India’s central bank till date, FMs have been having an eye on the reserves accumulating in the RBI balance sheets.   It was in this context that Dr Y V Reddy referred to the impact of sucking out RBI’s reserves dry on the "National Balance Sheet". Till some experts who know central banking and are not on the payroll of political masters advise on the adequacy of RBI’s capital (which remains static at a laughable 5 crores today!) and reserves of RBI, pressurizing RBI to fund GOI's deficits will not be in ''Public Interest".  
GOI needs to learn to live within its means and muster the strength to tap domestic resources like idle gold and jewelry with individuals and institutions. If GOI has a decent balance sheet, which will allow market borrowing without ''depending” on RBI, the level of reserves needed by RBI can be negotiated. In such a situation, GOI may be able to fund the central bank's losses. It would be very easy to destroy the image of trust and responsibility built by RBI over 80 plus years. Let us not forget SS Tarapore's fears about the death of central bank. What is at stake is the credibility of the nation.
M G Warrier, Thiruvananthapuram



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