RBI like ‘ seat belt’ for govt: Ex- gov Rajan

Supporting autonomy for the Reserve Bank in its standoff with the government, former RBI governor Raghuram Rajan said on Tuesday that the central bank was “like a seat belt in a car, without which accidents can happen”. He went on to say that the nation stands to benefit from an “independent and robust” RBI.

“Once you have appointed these deputy governors and the governor, you have to listen to them, because that is what you have appointed them for, they are your safety belt,” he told a television news channel.

Amid reports that the government was planning to use its nominees in the RBI board to force the central bank to take decisions in line with the Centre’s thinking at the coming November 19 meeting, Dr Rajan said the board’s role had traditionally

The RBI is something like a seat belt. As a driver, the driver being the govt, it has the possibility of not putting on a seat belt, but of course if you do not put on your seat belt you get into an accident... — Raghuram Rajan,

Former RBI governor

not been to take “operational decisions” but to focus on broader strategy as well as to ensure good governance. He said the RBI board, during his tenure, had rarely tried to put itself in the position of the professionals.

“So, they ( board) are there to ensure the

government’s money is well spent in the RBI, for example, the RBI doesn’t pay itself inordinate salaries and so on, but also to serve as a sounding board, which is why we have people from different walks of society, very eminent people,” he said. “So, my sense is the objective of the board is to protect the institution, not to serve others’ interest; it is to protect the health of the institution but also to provide wide, sensible advice. The aim of the board is to be Rahul Dravid — sensible, thoughtful, and not, with due respect, Navjot Sidhu,” said Dr Rajan.

However, a senior finance ministry official told a news agency on Tuesday that RBI governor Urjit Patel and his team must “recognise the period of an invisible RBI board is over”. This indicated that the RBI board meeting on November 19 was likely to be stormy.

Differences have emerged between the finance ministry and the RBI over the government asking for surplus money from the RBI, reportedly to the tune of ` 3.6 lakh crores. The finance ministry also wants a relaxation in the lending restrictions on some banks by removing them from Prompt Corrective Action ( PCA), and easing NPA norms for power companies.

On the issue of the government citing Section 7 of the RBI Act that gives it the power to issue directions to the RBI governor on issues of public interest, Dr Rajan said it would be best if each side respected the other’s motivation and thoughts. “And ultimately the RBI, after listening to the government and hearing what the government’s issues were, provided the best professional answer it could and historically it has done that. I have no doubt it is doing that today. It has a responsibility to fulfil to the nation,” he said.