Sanjeev Sanyal, principal economic adviser to the finance ministry, on Saturday said the Reserve Bank of India (RBI) has been given "unprecedented institutional powers" under the Narendra Modi-led NDA government.
Speaking at the India Today Conclave 2019, Sanyal said that the central bank's independence does not mean that it is not a part of the government.
"Independence of RBI does not mean independence from the Republic of India. It is still part of govt," he said during the India Today Conclave session 'Caged birds: Institutions under assault'.
There were reports of rift between the RBI and the government, especially former governor Urjit Patel, over the autonomy of the central bank and policy framework.
He said that it is the government that created a framework under the monetary policy. "For example, one of the mandates of the central government is to control inflation. It has set targets of 4 per cent inflation with a band of 2 to 6 per cent, and it has been hugely successful experiment...inflation has not only come down by 5-6 basis point -- as we speak, inflation is at 2 per cent and the problem is now that may be too low."
Sanyal, who is widely regarded as one of Asia's leading economists, said that a greater autonomy requires greater accountability and that every central bank in the world has to ensure accountability to the government.
"Every central bank in the world is made accountable to the govt. This does not mean that institutional autonomy is being eroded. The RBI is one of the most powerful central banks in the world," he said.
When asked about the exit of RBI governors Raghuram Rajan and Urjit Patel, Sanyal said Patel had resigned due to personal reasons and he had no problem with the Narendra Modi government.
Speaking on the issue of unregulated banking, he admitted that non-banking financial organisations faced liquidity problems and that is the reason why the government was asking the central bank to release more funds.
The central bank will pay Rs 28,000 crore as interim dividend to the government, which will help the Centre meet some of the shortfall in the GST revenue collection and meeting its revised budget estimates and burnish its fiscal credentials ahead of the general elections. The RBI had transferred Rs 40,000 crore to the government in August 2018.
Edited by Chitranjan Kumar