RBI reserve must not go for deficit financing: Arvind Subramanian

INSUBCONTINENT EXCLUSIVE:
NEW DELHI: Modi government’s former chief economic adviser (CEA) Arvind Subramanian says RBI must not compromise on its functional
autonomy but at the same time try to maintain a balance on cooperation and communication between Mint Street and the North Block
Speaking at the India Economic Conclave 2018, he said policies, not individual, are key things one should focus on. Acknowledging the steps
taken by RBI and outgoing governor Urjit Patel, he said RBI did a commendable job in dealing with the NBFCs, with prompt corrective action
and in dealing with private banks
“The key is whether the same is maintained going forward or not,” he said. “I think there was a very solid agenda for restoring the
financial system and RBI undertook some strong steps toward reforms in 2018
One has to see if RBI will continue to restore the financial system,” he said. Asked about the message being sent out with the new RBI
Governor’s appointment and his key priorities, Subramanian said restoring the integrity of the financial system and maintaining
independence and credibility of RBI should be key focus. The former CEA said RBI’s reserves became a bone of contention between the
central bank and the government, which according to him, must be used only for restoring the financial system, recapitalising banks and that
too only if reforms are undertaken in the public sector banks. “If there are excess reserves, even in order to put it into recapitalising
the banks, there must be fundamental governance reforms, otherwise it will be throwing good money after bad into a black hole,”
Subramanian said. He said this money must not be used for regular financing of the deficit or other expenditures and should be done
cooperatively, and not unilaterally, by the government or RBI. On the crisis in the NBFC space, the former CEA said there was a risk of
excessive lending
He underlined the five 'Rs' - recognition, resolution, recapitalisation, reform and regulation - as propounded by him earlier for resolving
the mess
“if you are going to open the spigots, there we need to be extremely careful and prudent and have the regulatory oversight in place to
justify any kind of increased lending back to NBFCs,” he said. During his tenure as CEA, Subramanian was quite vocal about the universal
basic income
Talking on the subject, he said the issue will find place in political manifestos in 2019 elections
“My strong suspicion and prediction are that almost every political manifesto heading into the 2019 elections will have some commitment
to some sort of universal basic income (UBI),” Subramanian claimed, adding that he should be held responsible for that prediction.