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RBI needs to be like 'Rahul Dravid, not Navjot Singh Sidhu', says Raghuram Rajan

The former RBI governor says the Reserve Bank of India is like "a seat belt, without it you can get into an accident".

twitter-logoBusinessToday.In | November 6, 2018 | Updated 15:37 IST
RBI needs to be like 'Rahul Dravid, not Navjot Singh Sidhu', says Raghuram Rajan

Giving two terminologies to describe the role of the central bank, former Reserve Bank of India (RBI) governor Raghuram Rajan has said the RBI is like a "seat belt", which prevents you from any mishap, or "Rahul Dravid", who plays sensibly and thoughtfully. Slamming the central government for the ongoing conflict between the RBI and government, Rajan said the Centre should listen to the advice of the appointed officials. "Once you have appointed a governor or deputy governor, you should listen to them," Rajan said in an interview with CNBC-TV18.

Giving reference to famous cricketer Rahul Dravid, who was also called The Wall of the Indian cricket team, he told the channel: "It (RBI board's aim) is to protect the health of the institution, but also to provide wide, sensible advice...the aim of the board is to be a Rahul Dravid, sensible, thoughtful and not, with due respect, Navjot Singh Sidhu." He also said the RBI is like "a seat belt, without it you can get into an accident".

Mincing no words, the 55-year-old Professor at the Chicago Booth School of Business even praised RBI Deputy Governor Viral Acharya's recent rebellion against the government's intent on curbing the RBI's autonomy. During a speech at the AD Shroff Memorial Lecture in Mumbai on October 27, Acharya lambasted the Centre, saying: "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."

Echoing Acharya's views, Rajan said: "Running over a central bank has not been good for any economy". He added the equilibrium between the Centre and the government can only be reached if both sides listen to each other. "Government should make its case to the bank and let the RBI decide," he said.

Rajan indicated liquidity crises among the non-banking financial companies are temporary and the problem could be solved by putting liquidity in the market.

"In general, central banks avoid lending to direct entities. Lending to direct entities involves credit evaluation. Central banks are not in fiscal function of bailing out entities," Rajan said. Rajan also appreciated both the government and the RBI for keeping inflation under control and the growing economy. He said the widening current account deficit could, however, be problematic for the country. Government officials have recently called for the RBI to relax its lending restrictions on some banks, and New Delhi has also been trying to trim the RBI's regulatory powers by setting up a new regulator for the country's payments system.

Edited by Manoj Sharma 

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