Former Reserve Bank of India Governor Raghuram Rajan on Tuesday said the rift between the central bank and the government can be resolved if both sides respect each other’s intent and autonomy, CNBC-TV18 reported. “The central bank has the liberty to say no if the government pushes the RBI to be lenient,” he said, “Government should make its case to the bank and let the RBI decide.”
His remarks came on a day The Indian Express reported that the finance ministry had sought the transfer of a surplus of Rs 3.6 lakh crore from the central bank to the government. The RBI did not accept the proposal, according to the newspaper. Reports of the disagreements between the central bank and the government came out in the open on October 26, when RBI Deputy Governor Viral Acharya said governments that do not respect a central bank’s independence sooner or later incur the wrath of financial markets. Three days later, Reuters reported that the Centre was upset with the RBI for publicly talking about the rift.
On Sunday, PTI reported that the Central Information Commission had issued a showcause notice to RBI Governor Urjit Patel for allegedly dishonouring a Supreme Court order regarding the disclosure of a wilful defaulters list. The commission has also asked the Prime Minister’s Office, Finance Ministry and the RBI to make public Rajan’s letter on bad loans.
Asked if he was satisfied with the action taken on the matter, Rajan said: “On the issue of frauds, the full force of the law should be employed to bring these frauds to book and to essentially show that the Indian law enforcement structure is capable of doing that. That certainly is a work in progress.”
The economist said there seems to be intent to bring billionaire defaulters to book. “It would be good if there is a sense that there is no place on earth where you can hide because the long arm of the Indian law will come after you,” Rajan said. “That will send a very sound message because you would not be able to enjoy wealth even if you make a way. This message needs to be sent if we have to protect our banking system.”
Talking about the relationship between the central bank and the government, Rajan pointed out that Acharya had used an analogy of a T20 and a Test cricket match. “But a good analogy is central bank is a seat belt for the government which is the driver,” he added. “The driver can decide whether to put on the seat belt or not. The driver may not put on the seat belt but the seat belt is useful in times of a crash.”
The former central bank head said he hopes that people derive the correct lesson from what has happened so far and “back off from the cliff edge”. “Both sides have to listen to each other but there has to also be a respect of each one’s turf,” he added. “What to my mind is most worrisome is the change in the role played by the RBI’s board in all this.”