RBI governor not superior to Finance Minister: Former PM Manmohan Singh in 2014 book

Amid reports that the Modi govt is set to move against RBI governor Urjit Patel, former PM Manmohan Singh, who has served as both an RBI and a Finance Minister said that the RBI governor served at the pleasure of the Finance Minister.

In his daughter's 2014 book  Strictly Personal: Manmohan and Gursharan, Manmohan Singh has given his views on the relationship between RBI and the Finance Minister: “There is always give and take. I had to take the government (when he was RBI chief) into confidence. The governor of RBI is not superior to finance minister. If FM insists, I don't see that the governor can refuse, unless he's willing to give up his job.”

The Modi government intends to keep pressing demands for the country's central bank (RBI)  to relax lending curbs and hand over surplus reserves even if it risks provoking a resignation by the bank's governor, three sources familiar with the government's thinking told Reuters.

While there appeared to be a partial truce last week when the government said it respected the autonomy of the Reserve Bank of India (RBI), the sources said the government will turn up the heat at the bank's central board of directors meeting on Nov. 19. And RBI Governor Urjit Patel will be a key focus of the pressure from a group of directors who support the government's position, according to the New Delhi-based sources, who declined to be named due to the sensitivity of the matter.

"We want the RBI governor to accept the priorities of the economy and to discuss these with board members," said one of the sources, a senior government official with direct knowledge of deliberations. "If he wants to take decisions unilaterally, it will be better for him to quit."Investors and traders warn that if Patel quits it will create uncertainty and undermine India's already-weak financial markets. They have been hurt in recent weeks because of defaults by a major financing company ILFS. 

The Congress Tuesday accused the Modi government of seeking to "demolish" the Reserve Bank of India (RBI) and said if the Centre's reported demand for Rs 3.6 lakh crore from the central bank fructifies, it would amount to "the great Indian robbery".

The party also said the government wanted the money to dole out freebies aheaf of the 2019 parliamentary election. 

Congress president Rahul Gandhi attacked Prime Minister Narendra Modi over the report, alleging that he needs the amount to fix the "mess his genius economic theories" have created.

He also urged Reserve Bank Governor Urjit Patel to "stand up" to the prime minister and "protect the nation".

There was no immediate reaction on the charge made by Gandhi.

"Rs 36,00,00,00,00,000. That's how much the PM needs from the RBI to fix the mess his genius economic theories have created. Stand up to him Mr Patel. Protect the nation," the Congress chief tweeted and also posted the media report.

He cited the media report claiming that at the heart of the RBI-government standoff was a proposal by the Finance Ministry seeking to transfer a surplus of Rs 3.6 lakh crore, more than a third of the total Rs 9.59 lakh crore reserves of the central bank, to the government.

Congress spokesperson Manish Tewari said at a press conference that the amount was being sought to allegedly dole out "freebies" ahead of the 2019 parliamentary election.

He said such a move would have "profound" implications on the macro-economic stability of India.

Alleging that the NDA government was "demolishing" the RBI, Tewari asserted that the Congress would resist all attempts to undermine the economic sovereignty of India and this "adventurism" would not be allowed.

"The facts which are emerging in the public space, the government wants the RBI to part with Rs 3.6 lakh crore out of Rs 9.59 lakh crore which constitutes the cash reserve of the RBI...," he alleged.

The RBI has been resisting this very strongly, Tewari said, adding the demand by the government was "unprecedented".

"If this were to fructify, this would tantamount to the great Indian robbery," the former Union minister said.

"This is going to have profound implications on the macro-economic stability of India...this is one of the fundamentals of the Indian economy that the RBI has enough liquidity available in order to meet any contingency. And today the NDA/BJP government wants to demolish that confidence (of investors) and demolish the Reserve Bank of India in the process," he said.

Talking about the government's intentions, Tewari alleged the reasons for such a move can be found in the economic data put out by the Ministry of Finance showing fiscal deficit and the current account deficit were mounting on a daily basis.

"So, in order to bridge that fiscal deficit, the government has started eyeing the money which is lying with the RBI. And what is even more disturbing is that they perhaps want to use the money in order to give out freebies before the 2019 elections," he said.

Tewari said the government must learn from Argentina where the transfer of USD 6.6 billion from the central bank to the treasury sparked off the worst constitutional crisis. Argentina is before the IMF for a USD 50-billion bailout, he said.

Talking about the reported proposal by the finance ministry seeking to transfer a surplus of Rs 3.6 lakh crore to the government, Tewari said it was an extremely "serious, sensitive and delicate" issue which will have very serious implications for the economic sovereignty of India.

While Gandhi has accused the government of "destroying" institutions with its alleged strong arm tactics, the differences between the Modi government and the RBI came out in public domain after a deputy governor raised concerns about the central bank's autonomy and warned that if the government did not respect the central bank's independence, it would sooner or later incur the wrath of financial markets. P

With inputs from PTI