New Delhi, Nov 6: Stressing the importance of the Reserve Bank of India, former RBI Governor Raghuram Rajan on Tuesday said it should be protected as a national institution.
'A lot of noise has been inserted in the RBI board's deliberations in the recent past. Running over a central bank hasn't been good for any economy, ' Rajan told a TV channel here. Commending RBI deputy Governor Viral Acharya for warning in support of RBI's autonomy, Rajan, in an interview to CNBC-TV18, said,' once you have appointed a governor or deputy governor, you should listen to them.'
Rajan said the ongoing rift between the Finance Ministry and the RBI can be resolved if both sides respect each other's intent.
'The central bank has the liberty to say no if the government pushes it to be lenient. Government should make its case to the bank and let the RBI decide,' Rajan said. Rajan said RBI could help with liquidity issues but if there was a solvency issue, Government should get involved in bailouts.
Bifurcating liquidity and solvency issues, Rajan said, 'RBI can help with liquidity issues but if there is a solvency issue, Government should get involved in bailouts. If there is a solvency issue, in such a case, the Government can contemplate a bailout option. 'He said that the objective of the board was to protect the institution, not to serve others' interest.
'They (RBI board) are there to ensure that the government's money is well spent in the RBI. For example, the RBI doesn't pay itself inordinate salaries and so on but also to serve as a sounding board which is why we have people from different walks of society, very eminent people.So, my sense is the objective of the board is to protect the institution, not to serve others' interest; it is to protect the health of the institution, not to serve others' interest,' Mr Rajan said.
The comments by Mr Rajan assume significance in light of differences between the RBI and the Centre in recent weeks, evoking criticism from Congress and other opposition parties for attempting to 'dilute' the central bank’s autonomy by the central government.
The exchanges began with a speech by one of the four deputy governors in the RBI, Viral Acharya. Making a strong pitch for the central bank’s independence in its core functions, he said, "risks of undermining the central bank's independence are potentially catastrophic. Governments that do not respect central bank independence will sooner or later incur the wrath of financial markets, ignite economic fire, and come to rue the day they undermined an important regulatory institution.' (UNI)