RBI's final warning

There are apprehensions whether Narendra Modi government’s out-of-the-way moves to keep a tight rein on the Constitutional institutions and administrative systems are turning to be such as to destabilize the entire nation.

Following the derailing of the attempts to control the CBI which is a central investigation agency, with the help of Central Vigilance Commission, criticisms have been raised that the Centre has been using its power on Reserve Bank of India (RBI), the central banking institution. The provision which empowers the central government to issue directions to the RBI which has an autonomous administrative system, in rarest of rare situations does exist in the bank's law. However, since the governments which were in power have been insistent on being cautious over implementing the rules in the books, nobody has wielded this weaponso far.

Even in 1991 and 2008, when the country faced deep financial crisis, the Centre had not dared to interfere in Reserve Bank's matters. The warning sounded by economists is that the attempt to invoke Clause 7(1) will hurt the autonomy of RBI. It was in deference to it, that even during acute crisis, the Reserved Bank was allowed to have its way. But for those who are vowed to implement its mysterious designs, governance, constitution, official machinery or well-honoured traditions do not matter. The Sangh Parivar does not have to care a bit for the integrity of official systems or its prohibitions, as long as they conspire to muster all authority to itself, and show no restraint in overcoming hurdles in its parth to implement its own agenda. But what is to be watched now with anxiety is this process of dismantling the democratic mehanism.

The problems simmering inside the RBI, as it happened in the case of CBI, came to light when RBI deputy governor Viral V. Acharya openly expressed them at a function in Mumbai on 26 last month. He emphasised that the polices and programmes of the central bank are not those that can be implemented by political parties with short-term policies and plans. He further explained that if the ruling machinery keeps meddling with the policy formation and executive matters of the central bank in that manner, the result would be economic crisis and chaos like what happened in Argentina. In several areas ranging from policy formulation of the bank to appointment, having politically inclined members on allied boards of the central bank and lending to fragile banks, right upto the issue of transferring RBI's reserve funds to the Centre, the Ministry of Finance has been tightening its grip on Reserve Bank.

Followers of Sangh Parivar were injected as non-official directors into the central bank's board for micro, small and medium scale enterprises (MSME's). They exerted pressure on RBI to pass loans to small-scale enterprises and to liberalize loan conditions, all deviating from the bank's executive and policy guidelines. This demand, that came at a time when economic growth rate was in a slump, was not entertained by the bank. Acharya cites several cases of interference in the central bank's performance with such instructions as that Reserve Bank should transfer the major chunk of its reserve funds to the Centre, RBI's control over public sector banks should be reduced, and the power of control over banks in granting overdrafts should be curtailed. His warning to the Centre was strongly worded quoting the lesson from Argentina. It also mentioned that governments which do not honour the autonomy of the central bank will 'incur the wrath of financial markets' and will 'ignite economic fire' and 'finally it will come to rue the day they undermined an important regulatory institution'. That was nothing but a statement that the central government was poking its head into the Reserve Bank and making a mess of it.

Earlier, it was by doing away with Raghuram Rajan, who was given to plainspeaking, that Modi brought his own confidant Urjit Patel, during the much-discredited demonetisation. But the Centre's wielding of the big stick of power has to come to such a pass that even he cannot afford to remain silent. The Governor believes that the moves to strip the RBI of its powers for debt control and the declaration that the ministry's officials will discuss them with the RBI's monetary policy comission empowered to do that prior to policy review, are all intended to turn the central bank into a silent lackey. Reports are that out of protest he is preparing to resign. In any case, the rift is complete in the administrative echelons of the Reserve Bank into two camps, one pro-Centre and the other anti-Centre. Modi government is again playing a dirty autocratic tactic of spoiling a thing and then taking it over.

The Sangh Parivar and its regime are evidently venturing to gulp the entire gamut of institutions and functions of governance including the CBI, Election Commission, appointments to the Supreme Court, bypassing the Rajya Sabha by using the money bill track, freedom for military heads for unchecked expression of opinion and propagation. RBI governor's cautionary note suggests a warning that if things go at this rate, they will be getting away with the entire country. What is to be seen is whether the country can pay heed to that.