RBI vs Govt: After CBI, RBI must strike back

Prime Minister Narendra Modi’s government seems to have a pathological propensity to bulldoze India’s consecrated institutions into timid submission. We just experienced the indecorous CBI saga play-out which would have embarrassed a B-grade Bollywood crime thriller. While many have happily succumbed of late, there seems to be symptoms of an intrepid fight-back, as if the crumbling edifices are battling for a resurrection.

If Director CBI Alok Verma has taken the government to the Supreme Court following the rather dubious midnight deconstruction of his official responsibilities, now it is the turn of India’s central bank, the Reserve Bank of India (RBI) to raise the red flag. Deputy Governor Viral Acharya did not opt for political correctness and muted remonstrance, which is the template of most public conversations in this time and Age of Fear. He took the government head-on; the Spanish bull would have approved.

Acharya’s message was translucent: repeated interference in the operating autonomy of the prime regulator will receive a severe backlash from the financial markets and create an unwarranted conflagration. Clearly, he was speaking from raw data. October has already seen a massive outflow of foreign capital aggregating ₹35,000 crores. The stock-markets after remaining on a different planet despite a wobbly economy for a considerable period in now on a yo-yo, but on a downward trajectory. Mint Street wears a deep frown. The government’s response to Acharya was palpably churlish.

Finance Minister Arun Jaitley characteristically launched into a tirade against RBI (reminding them of Section 7 of the RBI Act which empowers the government to issue directives to the central bank) , going to the absurd length of saying that the latter willfully camouflaged Non-Performing Assets (NPA’s), understating their magnitude by an astronomical number. This is utter balderdash. According to Jaitley, the NPA’s inherited by NDA from UPA which aggregated ₹2.60 Lakh crores in 2014, actually ballooned into ₹8,50,000 crores after asset quality review in 2015 itself, a mind-numbing 69% rise in one year.

This was an unparalleled confrontation; India’s FM was publicly accusing its finely reputed central bank of deliberate fraud. A calibrated concealment of factual NPA data by RBI ( in cahoots with banks) would tantamount to be an act of criminal culpability under both Sec 406 and Sec 420 of IPC ; an open and shut case of cheating to be investigated under the Economic Offences wing. Remember most PSU’s are listed entities, their stocks are actively traded on bourses based on their financial performance.

Foreign investors, domestic mutual funds, corporate treasury, small investors, all assume the highest standards of authenticity in balance-sheet data and profit and loss statements that are disclosed quarterly. There are deleterious consequences for manipulating data; Jaitley’s accusations could have irreparably damaged the credibility of RBI in global markets. The RBI must refute this outrageous allegation made by Jaitley, as this is a vulpine attempt to hang the RBI by the tallest tree with the thinnest thread to hide the government’s own chaperoning of crony capitalists. If NPA’s have crossed 400% to over ₹10 Lakh crore since Modi became PM, it is apparent that rampant ever-greening of loans and creation of new doubtful assets was liberally encouraged. Why?? The answer could be in that new financial instrument launched by Jaitley for political funding, electoral bonds, where the donor can remain conveniently anonymous. You scratch my back I scratch yours is the mantra this government has no compunctions in propagating. The RBI is the poor fall guy.

Nirav Modi and Mehul Choksi, two high-profile NRI absconders who duped PSU banks (Punjab National Bank is caustically referred to as Pure Nirav Bank) of over ₹16000 crores did so because they had political umbrage. It is true that there were audit failures, but the government is trying to shift responsibility onto RBI through its latest propaganda blitzkrieg by positioning it as a recalcitrant deputy, who looked the other way when Mehul Bhai and Chhota Modi looted taxpayers’ money. There is Vijay Mallya too. A cornered government is scapegoating.

In his letter to Dr Murli Manohar Joshi who heads a parliamentary committee on estimates, former RBI Governor Raghuram Rajan who was impertinently jettisoned by the government, had stated that he had given the list of powerful Who’s Who of Big Business who were willful defaulters to the Prime Ministers’ Office (PMO). Subsequently, an RTI query has confirmed the same. Modi has done nothing about it. Why? Why are these Big Kahuna’s identity and their liabilities not being made public? Are they the biggest consumers of bad debt?

Like the CBI, the Modi government has demoralised the RBI staff. The All India Reserve Bank Employees Association has collectively protested in support of Urjit Patel & co; these are unprecedented developments, reflecting a state mired in miasma. We should worry.

Jaitley’s attacks on RBI have happened at a time of rising oil prices, catastrophic collapse of the rupee (Asia’s worst performing currency in 2018), escalating current account deficit, with fiscal targets likely to be missed in FY 2018-19. A global tariff war only aggravates matters. As Modi’s term ends, his government itself has become a high political risk threatening the macroeconomic stability of our country. But it will take just one election in 2019 to change that.

Sanjay Jha is National Spokesperson of Indian National Congress party and President, All India Professionals Congress. The views are his own