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Show: Why RBI's complaints can lead to more stress in the economy

US President Donald Trump may apologize for appointing Jerome Powell as president of the US Federal Reserve. He responded to…

US President Donald Trump may apologize for appointing Jerome Powell as president of the US Federal Reserve. He responded to questions about the growing tension between the US central bank and the government over the federal interest rate policy. Deputy Minister Narendra Modi for Trump, Urjit Patel for Powell, and Reserve Bank of India (RBI) for the United States Fed, and there you are. After Friday’s speech by RBI Vice Governor Viral Acharya, GoI must be ruining on the day it appointed Patel as RBI governor.

Tensions between selected governments and unselected central banks are not new. In the United States, Trump has been a vocal, and Powell, despite major provocation, has restrictions. In India, the opposite is true. GoI, but increasingly (and with some motivations) dissatisfied with the RBI, have not expressed their dissatisfaction in public. But it has not kept the RBI back.

Another Bad Choice
The speech may have been delivered by Deputy Governor Acharya. But it is unthinkable that he would have said what he did without the approval of Governor Patel. Reading between the lines, it’s almost as if Patel shoots from the shoulder of his less than two years in the job deputy.

Had Acharya made a motivated case for central bank independence, or defended RBI’s little patchy record of late descendants can judge him kindly. The case for operational &#821

1; different from felt – autonomy has never been questioned. However, by launching a thinly slammed attack on GoI and eliminating the threat of market death, with insignificant account of the timing and context, Acharya has made a distinct disservice, not only to the RBI but also to the country.

To add insult to injury, he has compared India with Argentina, a country that has sevenfold its international debt and five times its domestic debt since its independence from Spain in 1818. Contrast with India’s spotless record.

At a time when growing geopolitical tensions and threatening US oil strategies against Iran threaten our already fragile external sector and macroeconomic and financial stability, it is difficult to understand why Acharya chose to trigger the consequences he warned against. It would not be a surprise if foreign investors respond by going out when markets open today.

But let me find out the characteristics, the three main questions raised by Acharya, two of which are very technical: the RBI’s limited control over public sector banks must protect the balance sheet and the proposal to set up a separate payment regulator.

On PSBs, there is enough historical evidence that RBI does not suffer from lack of power. On the contrary, it has much more clout with PSB, has a representative of the board for each, and shotgun marriage to save troubled banks has always been forced on public, rather than private banks. The truth is that RBI representatives have little to show for their presence. The private sector banks are not much better than their public sector counterparts, and RBI has failed to stop the root of non-bank financing companies.

The reason for insufficient powers towards PSB must be seen for what it is: an attempt to refuse the criticism to sleep at the clock.

On the RBI balance sheet, the image is more complex. It is undoubtedly important that the RBI has a strong balance, a substantial part of the central bank’s revenues comes from the seigniorage – the difference between the nominal value and the cost of printing currency.

RBI, Take Notes
It originates directly from its issuing authority, and in many countries it is entirely transferred to the government. So even if there is a case for building reserves, there is also an equally valid case for designing clear rules to determine how much should be transferred to the government and how much should go to build reserves.

Does the RBI, for example, need such a large reserve reserve? Can it instead learn from the same American Fed who came in for Acharia’s praise? Following the Lehman Brothers crisis, American Feds were measures – “quantitative easing” – nothing but funding for deficits. Even if it does not go so far, can the RBI take a more nuanced, less confrontational strategy on reserves?

On the way to setting up a separate payment regulator, it’s only a proposal for proposals now. Yes, the management of payment and settlement systems is part of the central responsibility of most central banks. But there are other models, especially in the US and Canada. In any case, the subject is so abusive that it does not allow for public debate and could have been solved through discussions with the Ministry of Finance.

If only Acharya had paid to former RBI governor Y V Reddy. “There is no such thing as blanket independent.” RBI is independent, within the limits set by the government, “said Reddy. That is how it should be. There is certainly a tendency for governments everywhere to frame the policy with an eye on the next election, while the central banks have a longer time frame. However, differences that arise due to this problem of time implications are best solved with friendly in closed door meetings, not through virtual refinement.

In a democracy, governments, not unprecedented central banks, are responsible for the people. Good central banks acknowledge and accept all this, and do not try to print the envelope to a point where it can boomerang all concerned.

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