INSUBCONTINENT EXCLUSIVE:
thought-provoking speech.
A few minutes after reporters assembled, the Governor walked in with a piece of paper and read out an amendment to
the speech he made earlier in the day and walked back to his suite without even looking up.
The usually jovial Dr
YV Reddy was grim, thanks to a direction from Finance Minister P Chidambaram to retract the reference in his speech to Tobin Tax, a levy
intended to temper foreign exchange inflows.
Those were the days of problem of plenty
The government was happy to receive as much US dollars investors brought in, but the central bank was worried about overheating that would
destabilise the economy.
The Governor amending a speech was an unprecedented event but so was a monetary authority that guards its
play the games.
Fast forward
Debate about the latest round of RBI-government tussle is raging as to who won and who lost
The crux of the discussions in the cocktail
for stepping on the toes of the central bank.
Just when the RBI appeared to be a tamed and reclusive tiger, the speech was a bolt from the
The demand for special window for nonbanking finance companies facing liquidity squeeze and the subsequent suffering of the small and medium
seeking more credit and faster growth because that is what they are supposed to deliver
The RBI is a partner but at the same time has to guard against the use of steroids which was done between 2008 and 2014 that Finance
Minister Arun Jaitley often highlights.
The issue of reserves comes rather down in the scheme of things since at least three committees have
examined it in the past and the debate has been kept boiling by former chief economic adviser Arvind Subramanian with a mention in his
Economic Survey a few years ago.
When the government did not get a breakthrough in any of these issues, someone decided to invoke the
untouched Section 7 of the RBI Act to write a letter seeking discussions on some of these issues
These firms borrowed for six months or one year and lent for 10-years or so to boost their profitability
That gave them the valuations higher than State Bank of India and ICICI Bank, and in some cases higher than HDFC Bank
Then came the demand for bailouts which the RBI declined, but the government, knowingly or unknowingly, bought
This will be discussed in the next board meet
By then some adjustments would happen in the market though none knows whether it would be for better or worse.
Struggling SMEs and banks
under the Prompt Corrective Action would get a lease of life under the suggestions of the board with final touches from the RBI
A committee would examine the transfer of reserves issue and the role of the board has been kept for a future date.
The answer to who won or
lost will depend on whom you ask
