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Home / Did you know / ‘Respect each other’s turf’, Raghuram Rajan on Govt v/s RBI

‘Respect each other’s turf’, Raghuram Rajan on Govt v/s RBI

November 06, 2018:

Raghuram Rajan
Raghuram Rajan

The Reserve Bank of India (RBI) can be likened to a car seat-belt, with the Central government functioning as the driver, says former RBI-governor, Raghuram Rajan.

Raghuram Rajan said in an interview given to Economic Times that the Government can decide whether it wants to put on the seat belt or not. Wearing a seat belt helps prevent the unfortunate eventuality.

Rajan was for sure referring to the recent spat between the central bank & the government, regarding rumours related to the imposition of Section 7 of the RBI Act, which would significantly weaken the bank’s autonomy.

The Act has never been imposed by any Central Govt. of India before.

Government’s interest in imposing the act, reportedly emerges from the fact that due to the scarcity of cash in the market, it wishes to take a loan from the Central Bank which tightens the noose around ‘weak’ government banks.

‘RBI Should Play Like Dravid’, Rajan on role of RBI

Speaking about the role of the bank in respect to the Govt, Rajan also likened the bank to former Indian team captain, Rahul Dravid, saying that like Dravid, it should play the role of “wise counsel.”

He went on to say that the role of the central bank is to be the wise counsel, like Dravid, not to make operational decisions & certainly not be loud like Navjot Sidhu.

Adding to this, the former RBI governor said that while the bank’s role has always been to maintain “financial stability”, the government’s agenda would be to “push growth”.

Referring to the tussle, Rajan said that while it is possible for the RBI & the Govt to disagree on matters, it is important that they both respect each other’s authority.

‘Imposition of Section 7 is a Cause of Worry’, Rajan expresses concern

Rajan said that if it were to happen, it would be a “cause of worry” and that relations between the two parties would become extremely “precarious”.

Reiterating his point about mutual respect between both the government and the bank, he said that while the RBI is an agency of the government, the latter should understand it has been entrusted with a particular task- to maintain financial stability for one- and to let it do so without interference, the report added.

At the same time, he also said that the RBI should be respectful of the “government’s territory”.

Raghuram Rajan to ET Ongoing dialogue must be based on respect. They have to be watchful of each other’s territories, when encroached it’s problematic. Hope respect for RBI’s territory gets re-established.

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