NEW DELHI, January 10(Reuters): The Reserve Bank of India is accountable to the government andshould make policies within the framework set by the government, according to aformer central bank chief now heading a panel tasked with framing guidelinesfor the transfer of the RBI's surplus funds to the government.
Bimal Jalan, the 77-year-oldex-bureaucrat, was appointed to chair the panel late last month, just weeksafter a fierce row over central bank independence led to a change at the top ofthe RBI.
Having clashed with thegovernment over policy issues for several months, Urjit Patel resigned asgovernor on Dec. 10, and was swiftly replaced by a former finance ministryofficial, Shaktikanta Das.
One of the most contentiousissues between the RBI and Prime Minister Narendra Modi's government was howmuch of the profit made from central bank's trading in bonds and currenciesshould be transferred to the government, and how much should be retained tobuild up reserves.
Modi faces an election by Mayand his government is urgently seeking extra funds to finance populist measureslike financial aid to farmers and tax cuts for small businesses and the middleclass.
Speaking to Reuters, Jalan,who was the RBI's governor between 1997 to 2003, declined to comment on hiscommittee's recommendations, but he set out his view on the relationshipbetween the government and the central bank.
"The RBI is accountableto the government for executing the kind of monetary policy that has beenannounced," Jalan said in his first interview since being appointedchairman of the six-member Expert Committee on Economic Capital Framework.
"There may be differencesof views between the autonomous institution and the government. In this case,the government should take a larger view depending on what the political situationis, what is actually happening on the ground.
"On the other hand, theautonomous institution has to deliver the services that the government hasapproved as part of policy framework."
Jalan went on to voice hopethat differences with the government would be settled, now that the centralbank was under new management.
"Now we have a new RBIgovernor who is from the government," Jalan said. "I hope the RBIwill work well under his leadership. Differences in views are fine, but thesehave to be resolved internally in the country’s interest."
The RBI said it had noimmediate comment on Jalan's remarks.
Soon after taking office onDec. 12, Das said he would consult more closely with the government on policyissues.
Under Das, the central bank islikely to transfer an interim dividend of 300-400 billion rupees ($4.32billion-$5.8 billion) to the government by March, Reuters reported earlier thisweek citing three sources with direct knowledge of the matter.
Das has also struck a dovishtone on prospects for inflation and the economy, hinting that the RBI mightadopt a more growth-friendly monetary framework under his watch, as desired bythe government.
The government also wants theRBI to release more liquidity to the shadow banking sector and relax its provisioningnorms for banks.
Das has said the RBI was opento infusing "need-based" liquidity into the financial system, notingthat the shadow banking sector was facing a funding crunch.
