Stand-off between govt and RBI not a good situation: S Gurumurthy

Irving Hamilton
November 17, 2018

India's government has proposed changing rules that will enable closer supervision of its central bank, people with knowledge of the matter said, a move that may undermine investor confidence in the world's fastest-growing major economy.

"Government of India has given up the right to print rupee in 2002, so that it can not print money to infuse liquidity", Gurumurthy, a right-wing ideologue, said while delivering a lecture at an event organised by Vivekananda International Foundation in New Delhi.

As many as 11 loss-making state-run banks are under the PCA facing numerous business constraints that RBI feels will allow them to gain health, but the government feels the central bank has reduced credit flow to the industry and would hurt economic growth. "The body has the powers to frame rules under section 58 of the Reserve Bank of India Act, 1934, and no legislative change is required", the Bloomberg report noted, quoting unidentified sources.

Mr. Gurumurthy further said India should not go beyond what has been prescribed in the Basel capital adequacy norms and made a case for enhancing credit for the MSME sector. Under Section 7 of the RBI Act, the government has the power to issue directions that are binding on the central bank.

"There has been a softening of stance by both the Finance Ministry and the RBI but the board meeting will be a larger platform with all members having some views".

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"It is likely that there will be some middle ground on issues like lending to MSMEs as well as discussion on most issues on the agenda". "As my understanding goes, the government is only asking for a formulation of a policy as to how much reserve the central bank must have".

Swaminathan Gurumurthy, a chartered accountant and the co-convenor of Rashtriya Swayamsevak Sangh (RSS) affiliate Swadeshi Jagran Manch, had written to RBI governor Urjit Patel complaining against Acharya's comments on maintaining regulatory autonomy on October 26 speech.

On non-performing assets (NPA) issue, Gurumurthy said it is time to think beyond NPAs and recapitalisation and there is need of comprehensive thinking model. "We create problems for ourselves where problems do not exists". He defended the goods and services tax as well, and said that while demonetisation was corrective in nature, the new indirect tax system was reformative. "We need proper discourse in Delhi because that's where the action is". "We have got to cut down the current account deficit and trade deficit in the next one year", he said.

Dollar-rupee relationship is working against rupee for the last several decades he said, adding now we are moving towards Yen.

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