RBI shouldn’t compromise on autonomy: Former CEA

RBI shouldn’t compromise on autonomy: Former CEA

Mumbai, Dec 13: With a new RBI governor at the helm, former chief economic adviser Arvind Subramanian said the banking regulator should not compromise on its functional autonomy, but at the same time communication with the government is important for better decision-making. Outlining key priorities of the new governor, Subramanian said these will be to restore integrity of the financial system and maintain credibility of the institution.
Speaking at the fifth India Economic Conclave 2018, he said the RBI’s “functional autonomy and governance is sacred” which should not be “compromised”, but for an overall better functioning, communication (between the government and apex institution) has to be improved.
Acknowledging the steps taken by the RBI and former governor Urjit Patel, he said the central bank did a “commendable job” in dealing with NBFCs, restoring integrity of the financial system and prompt corrective action (PCA) — stressing that policies, not individuals, are key things one should focus on. Subramanian’s statements comes in the backdrop of a bitter rift between the RBI and the government, leading to Patel’s sudden exit on December 10. Weeks before Patel’s resignation, differences between the RBI and government on at least two fronts, PCA and NBFCs, were reported.
The RBI’s reserves became a bone of contention between the central bank and government, which according to him, must be used only for recapitalising banks, only if reforms are undertaken in public sector banks. This money must not be used for regular financing of the deficit, and should be done cooperatively, and not unilaterally, by the government or the RBI, and a committee is good way of ensuring that, he added.
The government had reportedly sought for an easing of PCA norms so that more banks are able to lend liberally, while it had pitched for strong liquidity support to the NBFC sector, which was rejected by the RBI. Earlier delivering the keynote address at this edition’s theme, ‘Shaping India’s $5 Trillion growth agenda’, Maharashtra CM Devendra Fadnavis highlighted key factors for achieving growth, and outlined plans for making Maharashtra the first Indian state to have a trillion-dollar economy by 2025.