New Delhi: The government, Monday, won and the RBI lost in what turned out to be an attritional war that saw a Governor being scalped. One can argue that the central bank works at the pleasure of the government and the RBI Act says this with great clarity. Mint Street after its board meeting announced that it will transfer a surplus of a little over Rs 1.76 lakh crore to the government.
“The surplus transfer includes Rs 1,23,414 crore in surplus for the year 2018-19 and Rs 52,637 crore of excess provisions identified as per the revised Economic Capital Framework (ECF) adopted at the meeting of the Central Board today,” a statement from the central bank said.
Last November, when things reached a flash point, RBI Deputy Governor had created a flutter in the dovecotes when he said at the AD Shroff lecture: The RBI is neither an independent nor an autonomous institution. Governments that do not respect central bank’s independence will sooner or later incur the wrath of financial markets, ignite economic fire, and come to rue the day they undermined an important regulatory institution.
The RBI Act clearly states: “The Central Government may from time to time give such directions to the bank as it may, after consultation with the Governor of the Bank, consider necessary in the public interest. Subject to any such directions, the general superintendence and direction of the affairs and business of the Bank shall be entrusted to a Central Board of Directors which may exercise all powers and do all acts and things which may be exercised or done by the Bank,” which means that the RBI has to be subservient to the government.
