Now loaded with government nominees who can be relied on to support the running, the board is being renovated from a passive advisory body to a body that can authoritatively demand policy change.
Two of the board members informed that government’s heat on promoting leisurely lending policies will become clearer at Monday’s board meeting. This meet will be the first meet to be held after the rift between the government and the RBI became publicly evident.
With the election oncoming in May and voters apprehensive about meagre agricultural incomes and doubtful about whether enough employment opportunities are being provided, PM’s ruling Bharatiya Janata Party (BJP) is bent on stimulating the economy and believes that RBI’s warmongering is a barrier.
The government has been turning on the heat on RBI governor Urjit Patel to comply with a string of demands that could boost the economic demand. These demands include making borrowing policy lenient for small businesses, making the lending policies relaxed for 11 state-run banks which are in debt and capital sufficiency issues, and stipulating more liquid assets to shadow lenders.
They further want the government to gain access to superfluous reserves that RBI has stored up that will be used for the government’s democratic programs inclusive of boosting rural wages, buying crops at guaranteed minimum prices, and providing fuel subsidies.
The RBI has responded by asking whether the government wants to crush RBI’s sovereignty and warned that when this happened in 2010 in Argentina, financial markets plunged.
There have been signs of a distressing peace in the past week as some government authorities hinted that they do not wish to see Patel resigning and would allow some concerns to be tackled in Patel’s way.
While BJP supporters have put their foot forward that they want some big changes in policy and the government supporters have been permitted to push forward their demands at Monday’s meeting.
New board member S. Gurumurthy, a new amigo of PM Modi will spearhead the push. A columnist and an accountant who was a co-promoter of the Swadeshi Jagaran Manch—the economic wing of the Hindu nationalist Rashtriya Swayamsevak Sangh (RSS).
In Gurumurthy’s last week speech, he lashed out at the RBI’s hawkish stance on bank lending, claiming it was damaging the Indian economy.
The RBI’s colonial-era act, the government is allowed to give the bank directions only after consulting with the governor. The law further establishes the ascendency of the RBI board to perform “all acts and things” subject to the government’s directions. Moreover, it empowers New Delhi to sack any board member taking in the government.
Till date, the government hasn’t used the stringent sections of the act. For decades, the RBI governors have reaped the benefits of operational freedom, although they have conventionally worked closely with the government.
Besides the board doesn’t have direct authority over the interest policy. Modi approved of establishing a monetary policy committee in 2016 to set interest rates depending on India’s ability to meet the inflation target. The committee comprises of 3 government-appointed officials and 3 RBI officials.
Hinting towards an oncoming marathon meeting, the last board meeting held on 23rd October lasted for 8 long hours, soaking up only 2 out of 12 agenda. The rest of the points will be discussed on Monday.