Protect RBI, to serve public interest

Protect Reserve Bank of India

This refers to Debashis Basu’s article “The wider import of Viral Acharya’s speech” (Business Standard, Irrational Choice, November 12). This is not the first time that serious differences of perception have arisen about the RBI’s mandated role and responsibilities between RBI’s management and Finance Ministry have arisen. Whatever happens in the RBI Central board meeting on November 19, 2018, it is certain that RBI and MoF are not going to get insulated from future possibilities of policy-related differences of views on that day also.

Sane celebrities like Dr Panagariya have already come out openly and suggested that GOI and RBI should ‘come together in the national interest’ which is a mature advice coming from a person who is aware of the goings on but has no mileage to make by taking sides, as of now.

The present relationship issues between GoI and RBI are emanating essentially from disputes over the administration of financial sector regulation and sharing of ‘income’ between the two, which are best resolved in-house, as a ‘divorce’ is no option in the present scenario.

A lot has been debated about invoking Section 7 of RBI Act in the electronic and print media. My limited understanding of law and administrative expediency gives me an intuitive feeling 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 help from GoI. Media and the public should give the benefit of doubt to the MoF officials for any inadvertent reference to this Section while writing to RBI on any issues a dialogue is on between GOI and RBI.

While other issues raised by GOI, including those relating to relaxations in PCA and choking of credit flow to certain sectors  will have to be sorted out through mutual consultations for which RBI will not seek a direction from GOI, there is need to bring clarity on the GOI’s expectation from RBI to share a substantial portion of reserves.

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. But FMs have been having an eye on the reserves accumulating in the RBI balance sheet.   It was in this context that Dr Y V Reddy once referred to the impact of sucking out RBI’s reserves dry on the "National Balance Sheet".

The In-house committees of RBI including the Malegam Committee which advised Dr Raghuram Rajan that the reserves were adequate to cover his three-year tenure had limited scope to go into the issue with a global perspective.  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". Ideally, if a consensus on the issue cannot be reached soon, GoI should allow RBI to plough back entire surplus income arising from the revaluation of assets including gold reserves to Asset Development Fund, from now on. RBI should also be permitted to chase the self-set pre-2009 reserves target of 12 percent of assets.

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 the central bank. What is at stake is the credibility of the nation.

M G Warrier, Thiruvananthapuram