Weighing in on the tussle between the Centre and the RBI, former finance minister P Chidambaram on Thursday alleged that the Modi government sought Rs 1 lakh crore from the central bank’s reserves in desperation as it wants to step up expenditure ahead of the 2019 Lok Sabha elections. The Congress leader further warned that any attempt to “capture” the central bank using power would prove to be catastrophic for the nation.
“The government stares at a fiscal deficit crisis…It wants to step up the expenditure in an election year. Finding all avenues closed, in desperation, the government has demanded Rs 1 lakh crore from the reserves of RBI,” Chidambaram said at a press conference while lashing out at the government over demonetisation on its second anniversary.
Interestingly, Moody’s last month warned against the government slipping on the fiscal front and the deficit rising from 3.3 per cent to 3.4 per cent. On November 6, the Indian Express reported that a proposal by the Finance Ministry seeking to transfer a surplus of Rs 3.6 lakh crore, more than a third of the total Rs 9.59 lakh crore reserves of the central bank, to the government was not accepted by the RBI.
November 19 day of reckoning: Chidambaram
Calling November 19, when the RBI board is scheduled to meet, as the day of reckoning, the former finance minister alleged that “handpicked nominees” of the government would make every attempt to push through its proposals. “If RBI Governor Urjit Patel stands his ground, the Centre is planning to issue a direction under Section 7 of the RBI Act, 1934, directing the apex bank to transfer Rs 1 lakh crore to the government’s account,” he said.
Section 7 of the RBI Act is a provision under which the government can give directions to the central bank to take certain actions “in the public interest”. Until now, the government has never exercised its powers under the section.
At the heart of the standoff, are two government demands — one is on opening a special liquidity window for NBFCs and the other is to relax the Prompt Corrective Action (PCA) norms for at least three banks of the 11 in the PCA list. It is expected that these issues will come up at the November 19 board meeting.
Chidambaram said in such a scenario, the governor would have only two option — to transfer the money or resign. “Whichever option is taken by the governor, it will irretrievably damage the credibility and reputation of the RBI. It will also mean the capture of the RBI by the government. One more crucial institution will fall from grace,” he said.
Chidambaram on demonetisation
In a scathing assessment of demonetisation, Chidambaram called the note ban exercise a money laundering scheme. “GST collections, as well as direct tax collections, are short of estimate. The government will not be able to meet the fiscal deficit target of 3.3% for 2019,” he said.
The Congress leader further said the BJP no longer spoke of development but only of its Hindutva agenda. “It longer talks about ‘achhe din’ or growth and development. We only hear about the Hindutva agenda. The talking and writing are only about the divisive issues,” he said.