Why would anybody think that the independence of the central bank is at stake, says S C Garg

“I am looking for a reason why anybody would think that the independence of the central bank is at stake. This is a bit of a disappointment,” said S C Garg, Economic Affairs Secretary in an interview with CNBC-TV18 on Saturday. He was referring to the Reserve Bank of India (RBI) deputy governor Viral Acharya’s speech in the last week of October where he pitched for  “effective independence”, of the RBI.

Delivering the A D Shroff Memorial Lecture, Acharya had said, “What matters is the effective independence with which these powers (vested in the Acts governing the RBI or any central bank) can be exercised in practice. Governments that do not respect central bank’s independence will sooner or later incur the wrath of financial markets, ignite economic fire and come to rue the day they undermined an important regulatory institution,” Acharya said.

#CNBCTV18Exclusive | @DEASecretary responds to RBI Dy Governor Viral Acharya's speech on Oct 26 on the importance of central bank autonomy which sparked the #GovtVsRBI controversy pic.twitter.com/ZHZ0B7fMwj

— CNBC-TV18 (@CNBCTV18Live) November 24, 2018

Calling Acharya ‘an excellent orator, an impactful speaker’, Garg said, “We couldn’t really understand the why of that speech”.

Laying to rest rumours that the government had asked for capital reserves from the Reserve Bank of India, S C Garg, Economic Affairs Secretary emphatically denied the government had made that request to the RBI. He said that the government had done so was a ‘figment of imagination’.

He said: “There has been some misinformation [going> around that the government had asked for Rs 3.6 lakh crore of 3.1 lakh reserves. Not a single reference orally or in writing was ever made. It is  the figment of imagination, imagination running riot, reams of reporting and hours of discussion on something that is a non-existing subject. It was never asked”.

Refuting that the government and the RBI were not working  in harmony, he said the RBI and the government are like ‘Siamese twins and work together’.

Economic Affairs Secretary, Subhash Chandra Garg ( @SecretaryDEA ) in an #CNBCTV18Exclusive says @RBI is an extremely important institution; Govt & RBI are working together on inflation pic.twitter.com/20OTZ0sFpo

— CNBC-TV18 (@CNBCTV18Live) November 24, 2018

He remarked that the economic capital framework of the RBI is excessively conservative. He also said there is a discussion for governance.

#CNBCTV18Exclusive | @SecretaryDEA says there is a need for discussion on Governance. Adds, it is on the board agenda for the next meeting#RBIBoardMeet pic.twitter.com/UsvlseoCp8

— CNBC-TV18 (@CNBCTV18Live) November 24, 2018

Regarding the invoking of Section 7 of the RBI Act, Garg said Section 7 is not a ‘_brahmastr_a or nuclear weapon as some have described," he said, referring to reports in the media. “It started this year as the Allahabad High Court said you start provisions under Section 7. There,  I am told (I have not seen myself) that the attorney of the RBI suggested you have consultation under section 7. So the consultative process started there. It was a consultation, " he said.