Union Finance Minister Arun Jaitley on Friday called for a policy to determine how much money the Reserve Bank of India should hold in its reserves and how it should be spent. “There has to be a capital framework,” Jaitley told India Today, adding that the government could use the surplus to fight poverty.
Jaitley challenged the central bank’s argument that it was maintaining high reserves for future emergencies. “You are keeping reserves for a rainy day while generations of people are waiting for rain,” he said. “Surplus RBI reserves can be used for poverty alleviation.”
Last month, the Centre reportedly proposed a change in rules that will enable it to better supervise the central bank. This came in the wake of speculation about a rift between the finance ministry and the RBI. Early last month, a few news reports said the Centre has sought Rs 3.6 lakh crore capital from the central bank. However, government officials clarified there was no such proposal. Jaitley had also reiterated that the central government does not require extra funds from the RBI or any other institution to help meet its fiscal deficit target.
At a meeting of its board of directors on November 19, the RBI decided that an expert panel set up comprising government officials and its officers would examine the economic capital framework to decide on matters related to surplus reserves.
On Friday, Jaitley said former RBI Governor Raghuram Rajan supported a capital framework policy when he was the government’s chief economic adviser. But Rajan “went back” on the matter when he took over at the central bank, the minister added.
Earlier, there was speculation that the Centre may invoke, or may already have invoked, the Section 7 of the RBI Act, which empowers it to issue instructions to the bank. While the government has refused to respond to the reports, it has said that the central bank’s autonomy is essential for governance.
In the interview, Jaitley did not comment on the use of the Section 7, but said the government is “using every section at its command” to urge the central bank to take a decisive step on increasing cash flow in the economy and easing lending limits. He reiterated that the government was making no effort to interfere with the RBI’s autonomy. “The government is crossing no red line but the government cannot be oblivious,” he said.