Government wanted to withdraw Rs 3 lakh crore from RBI before 2019 elections: Viral Acharya

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New Delhi: Former Deputy Governor of the Reserve Bank of India (RBI) Viral Acharya has said that in 2018, some people sitting in the government ‘raided’ him to get Rs 2-3 lakh crore from the central bank for ‘populist’ spending before the elections. ‘ Tried to speak which was strongly opposed. Acharya has written in his book that before the 2019 general elections, the government was trying to extract this huge amount from the RBI to meet its populist expenditure. But RBI was not in its favor due to which its differences with the government increased.

At that time the government had also warned of using Section 7 of the Reserve Bank of India (RBI) Act to issue directions to the RBI. The matter was first raised by Acharya, the then deputy governor of RBI, in a lecture on October 26, 2018. Now this episode has also been prominently highlighted in the new preface of his book ‘Quest for Restoring Financial Stability in India’. In this, the government’s attempt has been described as ‘backdoor monetization of fiscal deficit by the Center’. In the foreword to the new edition of his book, published for the first time in the year 2020, Acharya said that some people with ‘creative brains sitting in bureaucracy and government’ had prepared a plan to transfer the huge amount deposited with RBI during the tenure of the previous governments to the account of the present government.

Actually, RBI sets aside a part of its profit every year instead of giving it completely to the government. This part had turned into a huge amount over the years. Acharya said the central bank had made record profit transfers to the government in the three years preceding the 2016 demonetisation. But in the year of demonetisation, the surplus transfer to the Center was reduced due to increased expenditure on printing of notes. In such a situation, the government increased its demands before the 2019 elections. Acharya said the attempt to extract more dividend from the RBI was a kind of ‘backdoor monetisation’ of the fiscal deficit. In fact, after missing its disinvestment target, the government’s fiscal deficit had increased.

Taking a jibe at the government’s intention, he said, “Why cut back on populist spending in an election year when the central bank’s balance sheet can be raided and the mounting fiscal deficit monetized?” Acharya had quit in June 2019, six months before the completion of his three-year term as deputy governor in charge of monetary policy, financial markets, financial stability and research. He also referred to the controversy over Section 7 of the RBI Act being invoked to issue directions to the RBI on behalf of the government, which has never been used before. He said that following the recommendation of the committee formed under former Governor Bimal Jalan, the government sidelined most of the original planners of this ‘idea’.

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