Govt, RBI on collision course: A sign of unhealthy economy

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Since quite some time all is not well with the mutual relations between the government and the Reserve Bank of India. The latter is an autonomous institution and the government is supposed to respect the institution that controls the finances of the country. Unfortunately the Modi government is riding roughshod over constitutional institutions and this shows the inclination of the Prime Minister Narendra Modi towards dictatorship. When on the eve of the 2014 elections, the BJP promised uncorrupt and transparent government, the people wanted to give a chance to the party even though its credentials as a secular party were not above the board. However, like umpteen other promises this one was also broken and forgotten. The mother of corruption was evident in the Rafale jet deal. Serious allegations were levelled against the Prime Minister, but he did not think it fit to rebuff them. When the Supreme Court sought details of the deal, the government declined to reveal on the ground that it is a defence secret with a foreign country. The Central Bureau of Investigation (CBI) is another institution which has become a department of internal clashes with the Director Alok Verma and Special Director Rakesh Asthana tussling with each other levelling corruption charges. The government wanted to gain an upper hand with a hand-picked appointment of a new Director but the Supreme Court came to the rescue and asked the Chief Vigilance Commission to investigate the charges against the Director within two weeks. Now the Reserve Bank of India is the target.

The government wants to dictate terms to the autonomous body and the Governor Urjit Patel is adamant not to submit. To have its way, the government wanted to invoke Section 7 of the Reserve Bank of India Act of 1934. This section was not used since the introduction of the Act. It empowers the government to issue directions to the bank after consultation with the Governor. Now the government wants to take the help of those board members who are willing to sing the song of the government. Instead of threatening to use Section 7 or manoeuvring the board members, the government should pave the way of consultative process with the Governor. The former Finance Minister P Chidambaram wondered as to what forced the government to think about Section 7. He said the UPA government did not use it even in 2008, when the world economy was hit by global crisis. He said the government was hiding facts about the economy. The tension between the government and the RBI was revealed when the RBI deputy governor Viral Acharya said that undermining of the RBI’s independence could be “potentially catastrophic.” It is a fact that India’s finances are weak and it is giving jitters to the Modi government.

The Reserve Bank of India, it is reported, has built up the reserve up to Rs 9.59 lakh crore. The bone of contention is that the government of India wanted a third of the portion of the reserve to be transferred to the finance ministry to set right the economy, reports said. Amidst reports of the sour relations between the government and the RBI, the former governor Raghuram Rajan on November 5 said that the central bank was “like a seatbelt in a car without which accidents can happen.”

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