New Delhi: All eyes will be on the RBI board meeting on Monday in Mumbai to see how the intense public battle erupted out between the Narendra Modi government and the central bank plays out.
The meeting assumes significance as everyone — from general public to investors — will be keen to see whether the government will use its nominee on the board to force the central bank to toe its line and how governor Urjit Patel and his deputies will counter it.
While historically the board had a supervisory role, the finance ministry believes that the era “of an invisible RBI board is over.” The government seems keen to use the board to exert pressure on the RBI for policy change on issues raised by it including boost in lending.
However, despite public posturing by both sides, there are still efforts being made in background to see whether they could reach at an agreeable solution so that a negative signal was not sent to international investors about independence of the India’s central bank.
The board meeting on Monday will consider contentious issues of transfer of surplus funds to the government, easing of bad loan norms, and ease of credit supply to MSMEs. The Modi government which will be facing the Lok Sabha elections in 2019 feels that the RBI isn’t providing support to boost the economic growth, which will be crucial for it to win public support next year. However, RBI believes that fund transfers could undermine its independence and hurt the markets.
RBI’s central board currently has 18 members, which include governor Urjit Patel and his four deputies. The other 13 members are nominated by the government, including two of its officials.
The matters between Centre and the RBI have worsened after reports that the finance ministry sent letters under Section 7 (1) of the RBI Act for consultations that gives the Centre power to issue any direction to the RBI governor on matters of public interest.
