Former RBI Governor Raghuram Rajan described the apex bank as a “seat belt” for the Central government which is in the driver’s seat, protecting the government against any “accident”.
Speaking to business news channel CNBC-TV18, Rajan said that historically governments have wanted to focus on economic growth but have had to do so within the limits set by the Reserve Bank of India, based on the country’s financial stability.
“The RBI is something like a seat belt… the driver being the government,” he said, adding if you do not put on your seat belt you may get into an accident which could quite severe,” he said.
“So most drivers listen to that annoying beep when you do not put on your seat belt. And then they put it on because they know it’s for their own good.”
The former governor further said: “When we said ‘no’ (to any proposal), the government understood that. We have responsibility for financial stability and therefore we have an authority to say ‘no’.”
His statement assumes significance amid recent signs of a rift between the government and the bank. RBI Deputy Governor Viral Acharya in October during a speech hinted at government interference in the bank’s functioning when he said the government might face markets’ wrath if it was seen eroding the central bank’s independence.
He noted that although the apex bank listened to all the proposals forwarded by the the government, it made decisions based on national interests.
“It has a responsibility to fulfil. It has to listen, of course, but at the end, it has to make a decision because ultimately it has that responsibility,” Rajan said.
He said the central bank after listening to all the proposals and issues of the government, gives its best “professional” reply.
On reports that the government might have imposed Section 7 of the RBI Act curtailing its autonomy, he said it is unlikely that any such step has been taken, suggesting that both the government and the RBI should respect each other’s motivation and thoughts.
“I think certainly it would be best if both sides respected each other’s motivation and thoughts… the RBI after listening to the government has provided the best professional answer… and historically it has done that,” he said.
“I have no doubt it is doing that today.”