Mumbai: The Modi government is hell bent on changing the rules of the game, as far as the central bank is concerned, a move which is expected to have far-reaching repercussions as far as the economy is managed. The government has accordingly proposed that a new system be put in place which will ensure that RBI working stays perpetually under the lens.
Primarily, these regulations are intended to empower the central board, which includes government nominees, and assign it the role of a watchdog. In other words, the RBI Governor will be just the face of the central bank and play a ‘diminished’ role in the new BJP-RSS eco system. Of course, these changes are subject to what happens on Monday in the RBI board meeting.
These regulations, once in place, will lead to setting up of oversight panels. The key areas where the government feels the RBI needs to be kept on leash are financial stability, monetary policy transmission and foreign exchange management. (Sources add-ed, by way of caution, that this was the thrust of what were essentially private discussions within the government.)
The airing of the latest government proposal in the media through dedicated sources is a clear indication that the war of attrition between the RBI Governor and the Centre is far from over. Rather, if the government decides to ride roughshod over the central bank, which the proposal suggests, it may sharpen the schisms and deepen the cleavages. According to Bloomberg, the recommendations being considered include setting up of several committees comprising two to three board members each.
The board has the powers to frame rules under section 58 of the Reserve Bank of India Act and no legislative enactment is required. So, that will not be a stumbling block. According to sources cited by other media outlets, the new regulations would transform RBI into a board managed institution; it will establish the supremacy of the RBI board and end the control of the committee of the central Board.
Reacting to the news, former finance minister Yashwant Sinha said, “I hope it is wrong because if it is true it will be disastrous for the integrity of the financial system of the country. “The sentiment was echoed by RBI deputy governor Viral Acharya last month: he had in a speech talked about the independence of the central bank, arguing that any compromise could be “potentially catastrophic” for the economy.
