Bimal Jalan was RBI's governor between 1997 to 2003.New Delhi:The Reserve Bank of India is accountable to government and should make policies within framework set by government, according to a former central bank chief now heading a panel tasked with framing guidelines for transfer of RBI's surplus funds to government.
Bimal Jalan, 77-year-old ex-bureaucrat, was appointed to chair panel late last month, just weeks after a fierce row over central bank independence led to a change at top of RBI.Having clashed with government over policy issues for several months, Urjit Patel resigned as governor on December 10, and was swiftly replaced by a former finance ministry official, Shaktikanta Das.One of most contentious issues between RBI and Prime Minister Narendra Modi's government was how much of profit made from central bank's trading in bonds and currencies should be transferred to government, and how much should be retained to build up reserves.PM Modi faces an election by May and his government is urgently seeking extra funds to finance populist measures like financial aid to farmers and tax cuts for small businesses and middle class.Speaking to Reuters, Mr Jalan, who was RBI's governor between 1997 to 2003, declined to comment on his committee's recommendations, but he set out his view on relationship between government and central bank."The RBI is accountable to government for executing kind of monetary policy that has been announced," Mr Jalan said in his first interview since being appointed chairman of six-member Expert Committee on Economic Capital Framework."There may be differences of views between autonomous institution and government.
In this case, government should take a larger view depending on what political situation is, what is actually happening on ground."On other hand, autonomous institution has to deliver services that government has approved as part of policy framework."Mr Jalan went on to voice hope that differences with government would be settled, now that central bank was under new management."Now we have a new RBI governor who is from government," Mr Jalan said.
"I hope RBI will work well under his leadership.
Differences in views are fine, but these have to be resolved internally in country's interest."The RBI said it had no immediate comment on Mr Jalan's remarks.Soon after taking office on December 12, Mr Das said he would consult more closely with government on policy issues.Under Mr Das, central bank is likely to transfer an interim dividend of Rs 30,000-40,000 crore ($4.32 billion-$5.8 billion) to government by March, Reuters reported earlier this week citing three sources with direct knowledge of matter.Mr Das has also struck a dovish tone on prospects for inflation and economy, hinting that RBI might adopt a more growth-friendly monetary framework under his watch, as desired by government.The government also wants RBI to release more liquidity to shadow banking sector and relax its provisioning norms for banks.Mr Das has said RBI was open to infusing "need-based" liquidity into financial system, noting that shadow banking sector was facing a funding crunch.