Centre asked RBI Rs. 3L crore before 2019 polls: Report
What's the story
Former Reserve Bank of India (RBI) Deputy Governor Viral Acharya revealed that the central government, led by Prime Minister Narendra Modi, sought Rs. 2-3 lakh crore for pre-election expenditure for the 2019 Lok Sabha elections, Mint reported.
However, he reportedly said that the bank denied the Centre's request to transfer the money in 2018.
Acharya made these claims in a new prelude to his book, Quest for Restoring Financial Stability in India, first published in 2020.
Details
Government attempted 'back-door monetization': Acharya
Acharya alleged that the central government's request for funds was an attempt to ensure "back-door monetization" of the fiscal deficit by the central bank.
When the RBI did not comply with the requests, the government proposed invoking Section 7 of the Reserve Bank of India Act, which allows it to issue directions to the bank on matters of public interest to resolve certain issues, he said.
This denial also triggered a clash between the bank and the Centre, he added.
What Next?
Demonetization year allegedly intensified fund demands
During the demonetization year, the expense of printing new banknotes reduced the transfers made to the Centre.
Acharya claimed that this increased the government's demand for funds ahead of the 2019 elections.
He said some government officials devised a plan to transfer substantial sums accumulated by the RBI during previous governments' tenures to the current government's account.
Notably, PM Modi announced the demonetization exercise on November 8, 2016, ceasing the validity of Rs. 500 and Rs. 1,000 notes.
Insights
Acharya warned of 'potentially catastrophic' consequences
In October 2018, Acharya first flagged the friction between the PM Modi-led central government and the RBI in a lecture, warning that undermining a central bank's independence could be "potentially catastrophic."
He said that governments that do not respect it sooner or later incur the wrath of financial markets.
In the midst of government pressure on the RBI's autonomy, then-RBI Governor Urjit Patel resigned, citing personal reasons.
About
Who is Viral Acharya
Acharya is the youngest person to become RBI's Deputy Governor after economic liberalization.
He reportedly handled RBI's Financial Stability Unit, Monetary Policy Department, Department of Economic and Policy Research, Financial Markets Operation Department, and Financial Market Regulation Department.
Reportedly, Acharya, who joined the bank on January 23, 2017, put down his papers due to "unavoidable personal reasons" in June 2019. He resigned six months before his term was supposed to end.