Page 40 - 30NOV2018E

COLUMN
NEWS &
VIEWS
BHARAT HITESHI
Hiteshi is an
independent journalist-
turned-author and a
political commentator.
The views expressed F India Act to ask the central
are his own
The government
is of the view
that the liquidity
squeeze in non-
banking finance
companies could
have a spiral effect
and impact growth
if not addressed
immediately
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BANKING
Tiff, mistrust grow over to be lenient with capital adequacy or directions been given by the Central when we say that the fundamentals of
norms, the official said, adding those
the Indian economy are strong, this is
Government and any Central Gov-
RBI’s surplus reserves norms for lenders are very stringent ernment to the Central Bank i.e. the one of the fundamentals of the Indian
Reserve Bank of India.
compared with global standards. The
economy that the Reserve Bank of
liquidity squeeze in non-banking
When speculations mounted
finance companies could have a spiral Government in its usual secretive way, India has enough liquidity available in
order to meet any contingency.
It had very serious consequences
came out with a statement which con-
effect and impact growth if not ad-
The unprecedented rift between the country’s central bank and dressed immediately. The government cealed more than it revealed. One was wherever such a move was under-
the government is only widening over the utilisation of the huge
surplus the RBI has accumulated without hurting its autonomy also wants some of these strictures to wondering as to what is this entire cri- taken. For instance, in Argentina when
be eased so that banks can kick start
sis between the Reserve Bank of India
$6.6 billion was transferred by the
lending and support economic growth and the Government is all about? Now Central Bank to the National Treasury,
ahead of a general election early next
it sparked of one of the worst consti-
it seems the fact which are emerging
or quite a while, reports have Besides, it has also been pointed out that year. in the public space that the Govern- tutional crisis and Argentina is before
been circulating in the public the government wants the RBI to part the International Monetary
space that the Government with most of its profit as dividend. Fund for a $50 billion
was planning to invoke Sec- bailout — $50 billion bailout
tion 7 of the Reserve Bank of November 19 meeting and the Argentine cur-
Government officials opine that “cur- rency has completely gone
bank to hand over a part of its surplus rently, the RBI’s capital needs put its pro- haywire.
reserves to put that to more productive visioning at 27 per cent, while most cen-
use. The matter is pending before the tral banks have theirs at 14 per cent. Our Economic Survey
Board of the RBI and is likely to be taken calculations state that if RBI provisions indicators
up again at its next meeting likely on at 14 per cent, it can free up to 3.6 lakh Why playing with the
November 19. crore,” the official said. The RBI board is economic sovereignty of
Subhash Chandra Garg, Secretary of likely to discuss capital framework and India? The reasons are
the Department of Economic Affairs, other issues at its meeting scheduled to available in the economic
tweeted:“[A] lot of misinformed specu- be held on November 19. data which is put out by the
lation is going around in media. The The government’s demand is expect- Ministry of Finance. The
government’s fiscal math is completely ed to further fuel tensions with the RBI, fiscal deficit and the Current
on track. There is no proposal to ask RBI which has been pushing back any moves Account Deficit is mounting
to transfer 3.6 or 1 lakh crore, as specu- that curtail the central bank’s independ- on a daily basis. In the first
lated.” Confident of meeting fiscal deficit ence. Part of the reason for the acrimony quarter of 2018-19, it was at
target, the government on November 9 was the leak of hostile communication $15.8 billion which is almost
clarified it is not seeking transfer of shared between the RBI and the Finance 2.4 per cent of the GDP and
3.6 lakh crore reserves from the RBI Ministry. Deputy Governor of the RBI it is growing. Government
and the only proposal under discussion Viral Acharya went on to point out that revenues are not growing
is to fix appropriate economic capital any attempt by the union government to in a corresponding manner
framework of the central bank. On the cross the red lines would come at a cost. because the economy has
fiscal road map, he said, the government The veiled reference was against the use • Tension mention The government’s demand ment wants the RBI to part with 3.6 shrunk. In order to bridge that fiscal
will stick to the fiscal deficit target of 3.3 Section 7 of the RBI Act 1934 which al- may further fuel tensions with the RBI lakh crore out of the 9.59 lakh crore deficit, the Government has started
per cent for the current financial year. lows the union government to override which constitute the cash reserve eyeing the money which is lying with
2013-14 was 5.1 per cent. From 2014-15 the central bank. Is RBI too strict? of the Reserve Bank of India. So it is the Reserve Bank of India.
“Government’s FD (fiscal deficit) in FY
Far from achieving a desirable
The government view point seems
One of the criticisms the Reserve Bank
one third of the cash reserves of the
onwards, Government has succeeded in that most central banks around the of India has faced lately is that it’s being Reserve Bank of India the Government ‘monetary-fiscal coordination’ in
bringing it down substantially. We will world keep 13 per cent to 14 per cent too stringent in applying the prompt wants that they should be transferred India today, the Reserve Bank of India
to the Central Government. And this is
and the government give the impres-
corrective action framework for banks.
of their assets as reserve, compared
end the FY 2018-19 with FD of 3.3 per
cent. Government has actually foregone with the Reserve Bank’s 27 per cent. An This situation seems extremely serious, going to have profound implications sion that they are not on the same
70,000 crore of budgeted market bor- indication about things to come up was sensitive and delicate issue which will on the macro-economic stability of page even as far as an understand-
India.
rowing this year,” he said. Garg further
have very-very severe implications
ing of their roles is concerned. The
available in the Economic Surveys which
said the only proposal “under discussion suggested that the RBI was sitting on too on the economic sovereignty of India. The autonomy of the Central Bank RBI suggests that its independence is
is to fix appropriate economic capital much capital. Last year, the RBI parted This was something which would have — the Reserve Bank of India — is what being violated while the government
rationalises its intervention in terms of
framework of RBI”. The clarification
with 10,000 crore more as interim
been absolutely unprecedented, never
provides confidence to both foreign
came amidst report that the government dividend which had been opposed by ever in the history of the Reserve Bank and Indian investors with regard to its concern for the economy.
of India ever since it came in to exist-
Governor Urjit Patel.
the stability of the Indian economy. It
is seeking transfer of at least a third of
Reserve Bank’s 9.6 lakh crore reserves. The government also wants the RBI ence has Section 7 been ever invoked constitutes one of the fundamentals, LETTERS@TEHELKA.COM
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