Arvind Subramanian, former Chief Economic Advisor, asserted that it is vital to protect the autonomy of the RBI, but at the same time the regulator’s failures should also be questioned and addressed.
“In the current context, I want to convey that preserving the integrity, autonomy and independence of the RBI, which is one of India’s few legitimately strong institutions, is very important and its sanctity needs to be preserved. No attempt to politicise the board or other things should be allowed,” he said during a conversation with TV Somanathan, Additional Chief Secretary, Tamil Nadu, while promoting his book Of Counsel: The Challenges of the Modi-Jaitley Economy .
But Subramanian felt that the tendency of some people to think that the RBI was above discussion will not give the right balance. While lauding the RBI’s fantastic track record, he said its performance on twin balance sheet and in terms of other regulations, particularly in the last 10 years, has been extremely poor.
Drawing attention to the content of his book, he said some credible analysts had been saying since 2011 that NPAs in the banking sector were huge. But the RBI was seriously underestimating the magnitude of the bad loans in their its analyses/reports.
Thus,, he felt programmes like Indradhanush turned out to be a weak kind because the government was told the problem was limited, not very serious. “So, in all, the independence of the RBI should be protected, but it also has a track record of regulatory failures that have to be addressed at the same time,” he said. “I think the RBI can no longer say ‘leave it to us, we will solve the problem’. Because that is simply not credible this time,” he added.
Referring to his view on the RBI’s excess capital, of ₹4.5-7 lakh crore, he said: “We never had that technical discussion that would have created a context. “But I would say very clearly that even though the RBI is over-capitalised, it should not be used for financing the deficit, expenditure... the excess capital must only be used for certain other purposes which will add to long-term growth of the economy,” he added.
He felt that recapitalisation should happen only if the government is willing to reform public sector banks, otherwise, it is like throwing good money after bad, he added.
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.