With the issue of RBI’s reserves to be decided by an expert committee, the government now plans to push for a discussion on boosting overall liquidity — the current shortage is estimated at Rs 1 lakh crore — as well as to relook RBI’s governance structures at the next board meeting on December 14.
Economic Affairs Secretary Subhash Chandra Garg said while the government is committed to RBI’s autonomy, there is a need to ensure RBI is more responsive and transparent in the manner other regulators are. Governance structures, Garg said in an exclusive interview, have evolved for regulators all over the world and public consultations are now a regular feature. The idea is to have a discussion along these lines at the next board meeting to make RBI more consultative and responsive.
While not commenting on whether the government would withdraw its consultation under Section 7 — this allows it to give directions to RBI — and let it be a normal consultation, Garg said he did not see any necessity to use Section 7. By way of example, the Economic Affairs Secretary said the setting up of a Monetary Policy Committee (MPC) was a governance reform and, instead of the RBI Governor taking a decision on his own, a group of people now did this and through voting. This allowed RBI to be independent but, at the same time, the decision became more participative.
Garg refused to get into the issue of whether the government wanted RBI to dip into its revaluation reserves, but said that all the government wanted was a proper framework. The Malegam panel, he said by way of example, had determined that RBI had extra reserves of Rs 1,49,000 crore, but it did not ask for this to be given to the government; it said that, for the next three years, all the surplus was to be given to the government. So, Garg said, “let us see what the panel says”.
With oil prices collapsing, Garg said, things had turned around and FPIs were once again bringing in money and, as a result, he expected yields to fall further. He said the fear of some NBFCs not being able to roll over borrowings was not such an issue any more. Solvency was no longer a concern, he said, though it was worrying that NBFCs weren’t able to grow at the pace they were earlier since they accounted for a large share of incremental credit. He spoke of the measures taken by RBI to augment credit flows to NBFCs, and said the Centre was not looking for RBI to create a credit window for them.
He said the government was aware of the possibilities thrown up by the fall in crude oil prices — reversing the excise cut and the subsidy that oil PSUs are bearing — but no decision had been taken on this. Garg reiterated that the government was quite confident of meeting the budget’s revenue targets. He said that at least one big ONGC-HPCL type of deal would take place and ensure the divestment target is met. He said the telecom shortage wouldn’t be more than Rs 5,000 crore — it was Rs 13,600 crore in FY18 — thanks to telcos settling dues prior to their merger. FE