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Tuesday, December 25, 2018

House in RBI autonomy

By on Tuesday, December 25, 2018

The dispute between the RBI and the Government during the month of November this year was at its top. The experts were aware of that RBI Governor Urjit Patel would resign any time, but then Urjit Patel’s meet with the PM Modi and there were signs of reconciliation between the RBI and the government.
The expert watchmen of economic issues assumed it a ceasefire and it began to appear that everything between the RBI and the government has been going well since then. The Market comes to regain its confidence.
But suddenly news of RBI governor’s resignation, abiding one month period, spreads. Even Urjit Patel resignation on own reasons was like others who had left their posts during this tenure.
The time of leaving his post on December 10 when there was going on a preparation for the meeting to be held on December 14 was amazing.
Actually, what had happened that Urjit Patel, kept on facing the war of government, stand for; and when the ceasefire declared between the both organizations, he resigned. The experts are admitting that the compromise was the part of a strategy of the both sides: Tu Dal-Dal, Mai Pat-Pat.
The experts watchmen over the activities of RBI say that when the dispute began that the government had intended to extract the fund of Rs 3.5 lakh crore in the reserve treasure of RBI, the government initially took an attacking stand for the issue. Even the government had resolved to use the RBI Act 7-- through it the government can issue directives to RBI; but in the 83 years of RBI’s history none government dared to use this Act.
The consequence of the government’s triggering over was that the matter become centred on the autonomy of RBI. According to the experts, Urjit Patel had tacit determination that if the section 7 of RBI act had been used, he would have resigned from his post. That Modi government implicated in the CBI matter did not intend to open two fronts simultaneously, so it resorted clement way over the issue; but the internal spat was continued.
The RBI and the government had concluded on what in the past meeting of board held in November was understood to have been the 'deed of solution' between the RBI and the government: one of these was that the RBI had restricted the 11 banks' lending of loans under the prompt corrective action, they were to be loosen to do so. The board meeting had concluded that an internal committee of RBI would sit and provide relax on the restriction of loan lending. even it had been agreed upon in the November meeting on this matter that the conditions to grant the loans upto 25 crore under the MSME would be easy.
The experts admit that a little clemency of Modi government had the thinking that the problem of funds of small industries and the markets in the electoral year should be reformed first, the matter of reserve treasure would be solved later, but it didn't happen because perhaps Urjit Patel was thinking like an expert economic professional.
That reason behind Urjit and his team were agreed upon to slack in the PCA framework was so because they were also first intending to ease government stress over them. It confirmed that the RBI had not relieved. The internal committee of RBI sat together to consider about the concession; but there were no decision taken finally to give concession to the banks in loan lending. Moreover there were no sign of much affirmative steps on the ease conditions to lend the loans in connection with the MSME which badly affected with the GST and the demonetistion.
The government had understood that it can garner a vantage immediately on the both issue, but that the way RBI was adopting to consider toughly on the issue could not reach it to a conclusion after 20 days of this meeting.
The government’s tenure is to end and the FY is in the electoral year, so the Modi government puzzled on the matter of economic front was disquiet over the Urjit Patel's attitude.
The finance ministry had felt that Urjit Patel was taking so tough step over the relax to the banks in the loan lending issues, and then he would never agreed upon the reserve treasure of RBI.
The government by obtaining the fund in reserve of RBI before the election has been intending to lure with the public interesting projects. That the effect of pressure on this issue was that an agreement concluded in the last RBI board meeting how much fund should reserve RBI and how much it should share with the government—both of them would form a committee to consider.
The officers of finance ministry after the board meeting began to release its statement that the RBI early would constitute an experts committee to decide the capital frame work, which would report it within one month. The experts were seeing it like government's maintaining pressure over the RBI; but there had not been availed any progress. there were differences between the RBI and the government that under whose leadership the committee should be formed.
The sincerity that was inkling in the RBI after board meeting of 19 November by all these reasons began to broken. The experts says that the known delegates of protecting the government’s favour, Mr Gurumurti and his team had got signal of posing the issue in the next meeting of board, which straight linked to the  RBI’s autonomy property.
Gurumurti and his team had already said, “The RBI governor is not the chief of Reserve Bank but its board is”.
While in traditional concept, the RBI’s autonomy can be meant that the board might opine mere over general management and economic matter where the governor and his team take the policy decision.
The experts say that the Modi governmet which was sofar avoiding it was then agreed by the statement of Gurumurti that the board governing RBI would be better in government’s relationship. The experts see it in this way that the decision would be kept on according to the government opinion and the governor’s role would be least. The significance of economy in the world so far has been letting that the Indian central bank is free from government.
It was clear that Urjit Patel had already understood that the rift between the RBI and the government had been much for the control rather any conceptual disagreement.
But he felt that he might be targeted personally; consequently he resigned before the board meeting of December 14. That his concept was wrong cannot be denied because it was in limelight that the government desired to sit an IAS officer instead an economist. Mr Shashikant Das has replaced now Urjit Patel.
The relation can be assessed between the RBI and Urjit Patel that even he did not thank formally in his resignation letter to the finance minister and the prime minister.
The writer is Editor; your comments are solicited
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