Senior Congress leader P Chidambaram on Thursday accused the Narendra Modi government of trying to “capture” the Reserve Bank of India to tide over its fiscal crisis, warning that any such move would be “catastrophic”, according reports.
“The government stares at a fiscal deficit crisis… The government wants to step up the expenditure in an election year. Finding all avenues closed, in desperation, the government has demanded Rs 1 lakh crore from the reserves of RBI,” the former finance minister said at a press conference.
He said the Centre is planning to issue a direction under Section 7 of the RBI Act, 1934, directing the central bank to transfer Rs 1 lakh crore to the government’s account.
“The day of reckoning is November 19 when the RBI board is scheduled to meet. The government has packed the RBI board with its handpicked nominees and is making every attempt to ram through its proposal at the meeting,” Chidambaram said.
“If the RBI either defies the government or RBI governor resigns, in either events, the consequence will be catastrophic,” he added.
Though differences between the government and RBI have peaked this year over a number of issues, including the central bank’s handling of the Nirav Modi crisis and the latter’s firm stand on bringing weak banks under prompt corrective action, the latest reason for the escalation is the liquidity crisis being faced by Non Banking Financial Company (NBFCs).
While NBFCs have approached the government complaining of a liquidity crunch and are seeking government support, the central bank is of the view that there is no liquidity problem.