Government and Reserve Bank at loggerheads
Bhumesh Verma 13 Nov 2018

Government and Reserve Bank at loggerheads

Different pillars of an economy must work in tandem for its steady growth – this requires a great level of harmony between the Government and other institutions for this.

Past few weeks, however, have been far from it between the Central Government and the Reserve Bank of India (‘RBI’). Their apparent differences on various issues have been hogging limelight in the media. This breeds insecurity and ambiguity in the entire eco-system, affecting the confidence of all quarters.

A part of the media is to be blamed for this as well. It has the proverbial tendency to raise a storm in a teacup – after all, any bad news is good news for the media.

The central government is facing with the uphill task of strengthening the position of Indian rupee in international market and stabilizing the nation’s economy / capital market. India economy is facing economic challenges from external factors such as US - China trade war, US oil sanctions on Iran and other geopolitical tensions.

Given these challenges, the Central Government and the Reserve Bank of India (RBI) have to coordinate/support each other more than ever before and act together to reinforce the monetary value of Indian currency.

Contrarily, the RBI and Central Government seem to be on loggerheads – this worsens the sentiments in economic markets and gives rise to tension amid the public about the impact of the supposed tiff on the national economy and personal financial prospects of people.

For example, a recent outburst of the RBI deputy governor on the central government (particularly, comparing the current Indian situation with that of Argentina) may have been uncalled for. Argentina has defaulted more than 5 times on its debt obligations, whereas India has an impeccable record in this aspect.

Limited control of RBI on public sector banks (PSBs), protecting RBI’s balance sheet and the prospect of establishment of a separate payments regulatory are the key point of conflicts raised by the RBI.

All these issues are better resolved through internal discussions / negotiations between RBI and the central government rather than public statements which only add fuel to the fire (if there is any).

Every autonomous body (including RBI) has its own reasonable independence to regulate and governs the matters fall within its ambit. RBI has been conferred with certain powers and independence to exercise such powers to discharge its duties and obligations.

Instead of jointly concentrating on issues like bank NPAs, NBFC crisis, currency depreciation, RBI and Central Government are indulging in turf war which does not serve any purpose and can only deepen the ongoing financial turmoil.

It is not just for RBI and the central government, all the government, regulatory and legal bodies must act responsibly/diligently and should work collectively to resolve the issues having detrimental impact on the financial prospects of persons, companies and the nation’s economy rather than trying to put blame for anything that goes wrong on each other.

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