Don’t want RBI money, but can’t let India starve: Finance Minister Arun Jaitley

As for the Reserve Bank of India (RBI)’s economic capital, he said it was never the main issue between the government and the RBI and that the government does not want any money from the bank’s reserves to fix its fiscal deficit.

“The main issue was not the economic capital framework. It’s an issue for a medium term. But the immediate issue is we can’t allow our economy to starve (on liquidity),” Jaitley said at a summit here. Stating that his government had the best fiscal deficit track record, he declared that even in the current year, he will meet the announced fiscal deficit target within the available resources.

“I don’t want any money from the Reserve Bank’s reserves at the moment. The only question which was raised were really two...there were several questions around two important facts -- first relating to liquidity in certain sectors of the economy and availability of credit,” he said. In his tiff with the RBI, which ended with Governor Urjit Patel resigning last week, Jaitley said he always respects the bank’s autonomy, but as a sovereign and accountable government, he had to flag the liquidity issue for which he used all tools available.

“We used every instrument available to our advantage to force a discussion and whatever steps we took – informal plus formal and statutory – were really to flag the issue of liquidity and credit,” he said hinting at the Section 7 of the RBI Act, which was never used earlier.

The section empowers the government to give directions to the central bank on matters of public interest even if the RBI or its Governor holds a different view. Stating there was never a breakdown in his relationship with the central banker, Jaitley said he wanted the autonomous and independent RBI to hold stakeholder consultations and resolve the problem, which was related to monetary policy.