meeting point

Source: The Hitavada      Date: 21 Nov 2018 13:06:06

OBVIOUSLY, both, the Central Government and the Central Bank have worked hard to find a meeting point on what was described to be a hostile ground. The Board of Directors of the Reserve Bank of India (RBI) appear to have come to a point of agreement with the Union Ministry of Finance that an unnecessary antagonism would yield no good result in the long run.

The RBI did have its case to argue in favour of autonomy to the fullest degree -- as regards capital base, central reserve, treatment and handling of stressed loan accounts of Micro Small and Medium Enterprises (MSMEs), and of course the infamous non-performing assets (NPAs) that have dogged the national economy for long. Yet, even as the RBI fought hard for autonomy, its top brass knew that it was almost chasing a mirage.

For, in the given condition that the Central Bank had failed to check many a point of sluggish management of the banking and other sectors of the economy, the Ministry of Finance made a strong case of a better regulation of the autonomous management of the RBI. It must be admitted that in the marathon meeting of the RBI Directors with the Government nominees on the Board, both the parties appear to have arrived at a sane conclusion that an agreeable meeting point was necessary. Many were tempted to call this a truce between the Central Government and the Central Bank because it indicated a possible negotiated settlement of the points of disagreement. 

The biggest worry that dogged the Government was that the strict implementation of loan-monitoring regulations impeded the credit flow to the enterprises that deserved funding. Irritated by the mounting NPAs and the widespread criticism, the RBI had started imposing stricter norms on the banks whose credit handling had become problematic. The Government was conscious of the RBI’s limitations, but wanted to ensure that credit flow would not be impeded. On this point, as reports have us believe, some sensible common ground seems to have been achieved in the Monday meeting.

Whatever happens to the relation between the Government and the RBI, this rather undesirable episode exposes many weak points in the country’s economic management. When the NPA issue blew up into the nation’s face and when the Government cried foul, the then RBI Governor Dr. Raghuram Rajan had verbalised one very critical thought: Please do not let the credit shrink. At that point of time, the Government held another view, which it now seems to have reversed at least to some extent. This little twist that is now visible to people bares the weaknesses we have allowed to grow like multi-headed hydra in our economic management. The implication is simple -- you chop one head, another one crops up in its place.

The current disagreement between the Central Government and the Central Bank is a demonstration of that ugly underbelly of the national economic management. If whatever is being described as truce between the Ministry of Finance and the RBI is able to confront this weakness and sort out its rotten parts, then something tangibly good can be expected. When many wise men of the Indian economy and politics come together, the likelihood of a sensible solution is quite good.

Yet, a very long way is to be traversed from this point on. For years, wrong notions of control and autonomy have dogged the country’s economic management. The two agencies have to work in tandem to regulate wayward forces of capital-centric economy. Indications are available from inside the closed doors now that a sensible and operational partnership may now be forged. If that really happens, then the people will have something tangible and good to look forward to in the economy.