‘Wo baat jiska saare fasaane me zikr na tha/ wo baat unko bahut nagavaar guzri hai..’
(The thing which was not even mentioned in the entire story/ that very thing has pinched him/her the most..) Whenever the reports of the widening rift between the government and the RBI are discussed, these very popular lines by Faiz Ahmad Faiz start echoing in the mind nowadays.
It has now become quite clear what the government wants from the Reserve Bank. In fact, the Central government wants that the RBI should share its cash reserve of billions of rupees with it. But the Central Bank is not ready for this. Swadeshi Jagran Manch, an organisation associated with the RSS, has hinted at the central government’s intentions. In conversation with news agency Reuters, Ashwini Mahajan, National Co-Convenor of the Manch, clearly said, "The Reserve Bank should give a large portion of its cash reserve of 3 lakh 70 thousand crore rupees to the government, so that this money could be used to drive the wheel of economic growth."
It is important to know here how much money the Central Bank of the country, after all, has, upon which the government has set its eagle eyes. RBI releases the details of its treasury on weekly basis. According to Reserve bank’s report ‘Reserve Money released on Wednesday, November 1, in the last week of October, the bank had ₹3.68 lakh crore of cash reserve. A large portion of it is in circulation as cash, and another portion has been given to the Central government.
Sources say that S Gurumurthy is behind this idea of using the RBI money. S Gurumurthy has been associated with the Swadeshi Jagran Manch and a few months ago, he had been appointed as the non-executive director of the RBI board by the government.
Why does the government need money from the RBI
Over the last few months, the faltering condition of the economy has become quite apparent and the cash crunch in the market started showing up. The non-banking financial companies (NBFCs), like IL&FS, have not been able to pay their loans, the value of rupee has been constantly depreciating, the gap between the current account is increasing, the fiscal deficit has breached the limit of the budget estimates five months before. There is no investment in the infrastructure sector and many government schemes seem to be on the verge of being left incomplete due to lack of money. The reason behind it all is the financial management, or rather mismanagement, of this government. As a result, there is not enough money left in the treasury.
Eyeing ‘achchhe din’ in 2019
The government now needs money from the Reserve Bank, so that it could be invested in the government schemes which are on the verge of collapsing. Experts who keep a watch over the financial management and discipline of the government say that this will directly serve the interests of the government. First of all, this will move the wheel of economic activities which may result in generating some employment. Secondly, it will help in checking the fiscal deficit to an extent. Thirdly, when there is some activity in the infrastructure sector, then it will encourage the private sector partnership too, and then more importantly, the government will be able to raise political funds from the private sector.
Sources say that S Gurumurthy is behind this idea of using the RBI money. S Gurumurthy has been associated with the Swadeshi Jagran Manch and a few months ago, he had been appointed as the non-executive director of the RBI board by the government. According to a report in the Economic Times, S Gurumurthy recently wrote a letter to RBI governor Urjit Patel complaining against the Reserve Bank Deputy Governor Viral Acharya. According to the report, though Gurumurthy refused to divulge the contents of the letter, it is believed that he expressed his displeasure at the comment by Viral Acharya, wherein he mentioned the interference of the government in the RBI functioning during a lecture on October 26.
Viral Acharya had said that the government interference may cause a crisis in the capital market. He also said that curtailing the powers of the Reserve Bank will have a negative impact on the functioning of the bank. It was only after Viral Acharya’s comment that the tension between the government and the RBI came out in the open. However, after this, the finance minister Arun Jaitley and the Governor of RBI came face-to-face in the meeting of the Financial Stability and Development Council (FSDC).
The Ministry of Finance issued a a statement clarifying its stand, saying that the government respects the autonomy of the Reserve Bank and there is always discussion and consultation between Centre and the bank from time to time, on issues related to public interest.
This statement by the Finance Ministry was a mild attempt to quell the tension, but immediately after it, the Swadeshi Jagran Manch, associated with the RSS, said clearly that RBI governor should either work toeing the lines of the government, or he should resign. This, obviously, indicated that the ceasefire between the government and the RBI is nowhere near.
But now, because the spat has come out in the open, which was not even mentioned in the story of this entire tussle between the two, all eyes are focused on the meeting of the Reserve Bank Board, which has been called by the governor Urjit Patel on November 19.