Viewpoint: RBI Government relationship

03 SEP,2019 | MEDC


 

In a developing country like India, the government and the central bank need to maintain a cordial relationship. But any transfer of funds should not be at the cost of a central bank left with limited autonomy. After all, the central bank has certain credibility and that needs to be maintained at all times. In the recent fund transfer, while the RBI has opted to keep the least it would need as firepower, it's emergency reserves have not suffered any major depletion. The government’s focus should be on the wise use of RBI’s one-time bonus, and it should not be under the impression that the RBI balance sheet can be tapped whenever required to manage an economic slowdown. Funds from the RBI should serve a nation-building agenda, and that is the only extent to which the central bank should be financially associated with the government. After all, with the ongoing US-China trade war, the RBI needs to be well stocked with resources to deal with macroeconomic instability triggered by a global financial crisis of the magnitude of the 2008-09 recession.

*Photo Credit: Google

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