In yet another criticism of government eying for the reserve of the Reserve Bank of India (RBI), former Chief Economic Advisor Arvind Subramanian said that the surplus money can be used only for fixing the financial system.
“Technically RBI has been massively over-capitalised. But this is the money that should only be used for fixing the financial system. It should not be used for financing deficit or any of the government expenditure,” the former CEA said.
Subramanian, during the launch of his book ‘Of Counsel: The Challenges of the Modi-Jaitley Economy’ at Bangalore International Centre, also said that any kind of sharing of the RBI reserves should be done co-operatively, not in animosity.
The major point of contention between the RBI and the government is the latter's proposal to get its hands on Rs 3.6 lakh crore of the bank's reserves for populist measures just before the elections, an idea driven by the finance ministry's view that the surplus can be managed jointly by the government and the RBI.
For the financial year ended on June 2018, the RBI had total reserves of Rs 9.59 lakh crore, which comprised mainly currency and gold revaluation account (Rs 6.91 lakh crore) and contingency fund (Rs 2.32 lakh crore).
On the continuous controversy surrounding the RBI and financial institutions, Subramanian said that 2018 was a horrible year for the Indian financial system. “. I think that the problems of the financial systems have been with us for a long time. But 2018 will go as annus-horribilis for the financial system,” he said.
After the bulging NPAs in the banking system, the country, in 2018, witnessed a huge default of IL&FS. And then government, after differences with the central bank, invoked the section 7 of the RBI Act, which ultimately led to the resignation of the former RBI governor Urjit Patel.
On IL&FS crisis, he said, “RBI should be more accountable…. It is unacceptable for the regulator to say that they don’t have data”
On Gurumurthy’s appointment
On the appointment of controversial RSS ideologue S Gurumurthy to the board of RBI, Subramanian said: “Any perception that RBI board is getting politicised become of the appointments, it could potentially undermine the institutions. We should try as far as possible to avoid that.” Gurumurthy was appointed on the board of central bank by the government in August this year.