Herald View: Leave the Reserve Bank of India alone 

The much anticipated Board meeting of the Reserve Bank of India, people have been advised, ended on a ‘cordial note’. Contrary to popular apprehension, RBI Governor Urijit Patel or Deputy Governor Viral Acharya did not quit in a huff. And by all indications, both RBI and the Government agreed to disagree on some issues and, on others, decided to buy time. A confrontation between the two spilled out in the open when Acharya warned in a lecture that governments that interfered with the central bank’s working, sooner or later, face the wrath of the market. For the lay readers, the Government wanted to raid the reserves of the RBI, amounting to over Rs nine lakh crore, in an election year to fund public expenditure.

The Finance Ministry had argued that the RBI was being too conservative in keeping such a large reserve and that not only did the Government enjoy authority over the RBI and its funds but it also had the sovereign right to secure those funds, as and when it wanted. Indeed, one of the ‘independent’ members of the Board, Chartered Accountant S Gurumurthy of the Swadeshi Jagran Manch, an RSS affiliate, just before the marathon meeting, had struck a hornet’s nest by asserting that the Government, not the central bank, should have the right to print currency notes. While he came in for widespread criticism from financial experts, Gurumurthy, said to be one of the architects of the disastrous Demonetisation two years ago, claims to enjoy the confidence of the Prime Minister. There was an apprehension that he could prevail over others in the board.

It is nobody’s case that the RBI Act does not need a relook. The Indian central bank does need structural changes. The composition of its board itself has been controversial with experts raising ‘conflict of interest’ issues related to industry representatives. ‘Independent Directors’ are a myth, experts have pointed out, with the Government enjoying overwhelming support in the RBI board. The appointment of Gurumurthy himself is a case in point. The country has no dearth of economic and financial experts who could be appointed to the RBI Board. A search committee comprising past members of the board would possibly have selected a far more suitable expert than Gurumurthy. But the Government’s fiat to select nominees of its own choice vitiates the process.

Monetary policy is serious business in an increasingly complex world and should be left to experts. The Reserve Bank of India cannot be treated like a back office of the Finance ministry because that would render it useless. The wizards in the Finance Ministry could have taken all decisions. The lesson for the Government is to leave RBI alone. But trust the Government to plant stories in the media that it has had its way, that the Prime Minister has shown RBI who is the boss! One hopes better sense will prevail and Mr Modi and Mr Jaitley would have the good sense to maintain the independence of the RBI.