New Delhi: In an apparent reference to the recent spat between the government and the Reserve Bank, Vice President M Venkaiah Naidu said that there should be continuous dialogue between two their boardroom rather than discussions through media. In the recent past, the RBI and the Centre have not been on the same page with regard to certain key issues like the level of the central bank’s reserves, lending to MSMEs, and liquidity of NBFCs.
Addressing an event in the national capital on Tuesday, Naidu said, “Reserve Bank of India&govt of India must have a regular continuous dialogue. There is no question of who is powerful or who is final. Final is the people&their interests. All these systems are created to facilitate people’s welfare.”
“So they should have to have a dialogue within their boardroom rather than discussions through media and then come to some solutions addressing the actual problems,’ added Vice President Venkaiah Naidu.
Referring to the issue of liquidity crunch, Naidu said the problem was because few “black sheep” who have taken the system for a ride, affecting the entire industry.
“The problem of liquidity crunch is due to a few black sheep. All of us have to introspect. Few people have taken the system for a ride and banks lent money left and right.RBI wasn’t doing things at that time and now they have tightened everything resulting in problems,” Naidu said.
It is to be noted here that the Finance Ministry had earlier sought discussions under the never-used-before Section 7 of the RBI Act which empowers the government to issue directions to the RBI Governor.
RBI Deputy Governor Viral Acharya had in a speech last month talked about the independence of the central bank, arguing that any compromise could be “potentially catastrophic” for the economy.
On November 19, the RBI board had held a marathon meeting amid a rift between the central bank and the government over several issues including how much capital the apex bank needs, lending norms for small and medium enterprises and rules for weak banks.
Following the meeting, the RBI and the government agreed to refer to an expert committee the contentious issue of the appropriate size of reserves that the RBI must hold, while restructuring of stressed loans of small businesses would be considered by the central bank.
The government feels that MSMEs, which employ about 12 crore people, play a critical role in the economy, and the sector which was hit by demonetisation and implementation of the Goods and Services Tax (GST) needs some support.
However, the central bank has been averse to the government’s demand for special dispensation for MSME and NBFC sectors as it considers them to be vulnerable.
(With agency inputs)