Economic policy a government prerogative

[dropcap]F[/dropcap]or once, finance minister Arun Jaitley appeared to stand his ground firmly when he asserted that there was no confrontation between the government and the RBI and that there were only differences in views. This was a marked departure from earlier occasions when the finance minister often appeared to sound apologetic while talking about problems between RBI governor Urjit Patel and the Modi government. The clash ended with Patel’s resignation and the appointment of a more pliable Shaktikanta Das as the new incumbent, indicating normalisation of relations between the two sides.

Jaitley is quite right when he insists that setting the broad direction for the country’s economy is the responsibility of the central government. The RBI, of course, enjoys autonomy in its own sphere of activities, but the apex bank has the obligation to align its policies with the broad economic framework laid down by the government of the day. The finance minister also pointed out instances from the past when the RBI and the prime minister did not see eye to eye on certain issues. For instance, during Jawaharlal Nehru’s time, he demanded the exit of the then governor Benegal Rama Rau while Indira Gandhi had asked S Jagannathan to leave. Even former finance minister Yashwant Sinha had sought the resignation of R N Malhotra. Jaitley also recalled how his predecessor P Chidambaram was not even on talking terms with two RBI governors of his time.

The Modi government has been facing flak for ‘destroying’ constitutional institutions and the Opposition had taken cudgels against it for forcing Urjit Patel to toe its own line, but without much success as the governor threatened to quit if it used the powers conferred on it under Section 7 of the RBI Act. Although a thaw appeared to have been reached at some stage, the tussle ended only with the resignation of Patel, though he cited personal reasons for his decision.

Jaitley admitted that there were two-three areas of differences with the RBI, but questioned how a mere discussion on its functioning could be considered ‘destruction’ of an institution. The differences included the approach towards credit flow in the economy and liquidity support, and insisted that the government had initiated a ‘discussion’ to convey its concerns. “In some situations, the autonomous institutions also have to be informed that there is some difficulty arising in the system that requires to be corrected,” he argued. There is no doubt that the government is the biggest stake holder in managing the country’s economy and all institutions of the sovereign are supposed to facilitate the government’s task. And if the government goofs up in any way, it will be held accountable by its masters, who are the people of the country, and that is the best possible arrangement in a democratic system.