RBI union backs deputy governor, warns govt not to ride roughshod over central bank

A Reserve Bank of India employees’ union, in a strongly worded statement, warned the government against riding roughshod over or undermining the central bank’s autonomy. The union asked “right-minded people” and “experts” to persuade the government to let the RBI do its job in an “unfettered” manner.

The RBI union’s statement comes days after the central bank’s deputy governor, Viral Acharya, in a rare public outburst said that governments that “do not respect the 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 All India Reserve Bank Employees Association statement mentions Acharya’s outburst. It was not a “sudden outburst” but the result of a “long simmering discontent”, the union statement says, before explaining that conflicts between the central bank and the government are not specific to the ruling political party of the day.

Governments, due to their short, election-to-election tenures, are prone to “putting pressure on the RBI to fall in line”, the statement says. “There is an intrinsic schism and not regime specific.”

The statement also recalls how former RBI governor D Subba Rao once said that former finance minister P Chidambaram had been so angry with the central bank that he preferred to “walk alone without the RBI”.

But, the statement quotes Rao, Chidambaram would definitely think, “Thank god the Reserve Bank exists”.

“However, the hiatus has widened now and Dr [Viral] Acharya has spoken more in disgust and despondency due to continuous nibbling by the government and the Ministry of Finance,” the union statement says.

The statement also warned that the RBI Board is “being sought to be stuffed in a particular direction” and that “undermining the country’s central bank is a recipe for disaster”.

The statement adds that the RBI and the government must “talk and sort out things” instead of the latter “trying to ride roughshod over the RBI, what [sic] they are trying at the expense of the nation”.

The employees’ union’s statement comes at a time when murmurs of a growing divide between the Reserve Bank of India and the government are growing stronger with each passing day.

The RBI and the government have been at loggerheads over several issues such as the proposal to set up a new agency to regulate payment banks country, the RBI’s lending restrictions on banks and the central bank’s handling of the non-performing assets crisis.

Speaking at a lecture in Mumbai on Friday, deputy governor Viral Acharya said that governments that “invest in central bank independence will enjoy lower costs of borrowing, the love of international investors, and longer life spans”.

“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,” Acharya said.

Acharya also compared the priorities of the RBI vis-a-vis those of the government to cricket. Acharya said that for a government, the “horizon of decision-making is short, like a T20 match”. The RBI, on the other hand, “plays a test match”, Acharya said.