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Last updated: 21 Nov, 2018  

RBI.9.Thmb.jpg Good news: RBI-Centre conflict cools down

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Bikky Khosla | 20 Nov, 2018

Finally the ice is broken and we can now heave a sigh of relief as the tension between the government and the RBI eased, with the two sides finding a somewhat middle ground on some contentious issues in a much-awaited board meeting that began on Monday. Amid media reports portraying the differences as a face-off and even as attempts by the Centre to undermine the independence of the central bank, it was widely expected that the confrontation will escalate further, but fortunately it didn’t happen.

The RBI has now agreed to inject Rs 8,000 crore into the market by purchasing government securities on November 22. In a statement after the meeting, the central bank said that the decision was based on an assessment of prevailing liquidity conditions and also of the durable liquidity needs going forward. Additionally, in a positive development for the micro, small and medium enterprises (MSMEs), the board zeroed in on a new scheme for the sector, which will now allow loans up to Rs 25 crore.

But some contentious issue are yet to be addressed to the satisfaction of the union government. The government is of the belief that NBFCs are facing an acute liquidity crisis, which in turn, is impacting the real estate sector and small businesses. Now, the matter has been deferred to the December 14 meeting of the central bank. Similarly, the issue of transfer of excess RBI reserves to the central government is now to be transferred to an expert committee.

However, with latest developments, the threat of invoking Section 7 of the RBI Act, 1934 seems to have passed. It would have brought the relationship to a new low. There is nothing new in the fact that the government wants a 'politically correct' monetary policy while the RBI places emphasis on objectives that are often different from the political view, but what is most important is that none of them should lose sight of the common goal of growth with equity.

I invite your opinions.

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