We Don’t Need RBI Reserves to Meet Fiscal Targets: Arun Jaitley

Arun Jaitley also said that a regulator cannot be “isolationist” and has to consult all stakeholders.

File image of Union Finance Minister Arun Jaitley.

(Photo: IANS)

Finance minister Arun Jaitley, speaking at an Aaj Tak event, expressed confidence that the government will meet its fiscal deficit target of 3.3 percent GDP till 31 March, without taking anything from the central bank’s reserves, reports the Hindustan Times.

“It (part of the Reserve Bank’s reserves) could be used for recapitalising public sector banks, and for the poor of the country,” he was quoted by HT as saying.

“The government does not use it (part of the Reserve Bank’s reserves) for its own salaries. My government has the best fiscal record. Even this year, we will maintain the fiscal deficit and I don’t need that kind of money for maintaining fiscal deficit.”

Arun Jaitley, Union Finance Minister

The former Chief Economic Adviser (CEA) Arvind Subramanian had argued in his book that the Centre and the RBI should strike a bargain where the government should allow reforms of public sector banks, reported HT. He argued that the reforms should include majority private-sector participation in them, while the central bank should deploy its surplus capital to help recapitalise state-run banks.

Jaitley also said that while enjoying functional autonomy, a regulator cannot be "isolationist" and has to consult all stakeholders.

Without mentioning the government invoking the unprecedented controversial Section 7 of the RBI Act, he said that the government used “every instrument available to our advantage to force a discussion with RBI” on issues of liquidity and credit.

Jaitley also claimed that there was never a breakdown in the relationship between RBI and government, and he said that “pleasant meetings” were held regularly at all levels, including with Prime Minister Narendra Modi.

“Institutions need to be independent, they need to have functional autonomy but institutions don’t have to be isolationist.”

Arun Jaitley, Finance Minister

Without specifying RBI, he said there is a need for regulators to consult all stakeholders as that is when one gets a "feel of the market." He said that “one cannot say that one reads the books, data and research papers before forming opinions.”

"The empirical situation in the market will be entirely different, unless you consult stakeholders," he said, adding there is a fair chance of a regulator going wrong on a subject because of the isolationist attitude.

In the weeks prior to Urjit Patel’s sudden exit from RBI, there were reports of him refusing to meet key stakeholders, especially from non-bank lenders when they were in crisis, reports PTI.

Jaitley also hit out at previous governments for displaying a "defeatist" attitude in the face of an "indifferent" RBI when it came to the matter of interest rate.

Improvising on a statement from his predecessor P Chidambaram of "walking alone" in face of non-cooperation by RBI under D Subbarao, Jaitley said,

When you walk, other decision-makers also have to talk with you.

He hoped RBI will look at the widening real interest rates, a consequence of a massive dip in inflation, while announcing the next policy review.

Jaitley also reiterated that government is not eyeing any windfall from the RBI's excess capital reserves which can be used for high public expenditure ahead of the elections.

(With inputs from PTI and Hindustan Times.)