SBI economists slam 'intelligentsia' for 'misunderstanding' RBI autonomy

Economists at the state-run State Bank Wednesday hit out the defenders of the central bank autonomy, saying the RBI's independence has been "misunderstood by the intelligentsia".

In a note prepared in the context of the Bimal Jalan committee report which cleared transfer of Rs 1.76 trillion of its surpluses to the government, the economists said fears of "heavens falling" stoked by the "scholars" have been given a burial by the panel's recommendations.

Stating that the Rs 52,000-crore surplus payout is much lower than the estimates, the economists said, "the questions on the central bank are often misunderstood".

It can be noted that a slew of commentators, including former governor YV Reddy, D Subbarao, Raghuram Rajan, and Urjit Patel and also former deputy governor Viral Acharya among others, had been vociferously warned against the idea of government "raiding" the central bank's balance sheet.

Acharya had gone public with his reservations while still serving the RBI, warning of the "wrath of markets" if the central bank's independence is compromised.

In their note, the SBI economists said RBI is the only central bank in the world with both "a goal and instrument independence" and also reminded that as per the Constitution, the Reserve Bank's policies ought to be aligned with that of the executive.

Meanwhile, it said the government will "comfortably" meet the 3.3 percent fiscal deficit target for FY20, thanks to the Rs 1.76 trillion windfall from the RBI's reserves.

The additional resources will help cover up for the Rs 90,000-crore tax revenue shortfall, according to its estimate.

It said additionally, the government has the ability to cut the capital expenditure this year as well if need be.

Meanwhile, in a note, India Ratings said the RBI payout will help marginally ease pressure on the government finances. The rating agency, however, added that the large transfer is a one-time event and is unlikely to stoke inflation either.

State Bank of India