Chinmaya IAS Academy – Current Affairs Chinmaya IAS Academy – Current Affairs
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The rift between the two became public last month after a speech by RBI Deputy Governor Viral Acharya in which he cautioned that “governments that do not respect central bank independence will sooner or later incur the wrath of financial markets… ignite economic fire, and come to rue the day they undermined an important regulatory institution…” ‘Thorny issue’ Talking about challenges in maintaining the RBI’s independence, Mr. Acharya had said, “Having adequate reserves to bear any losses that arise from central bank operations and having appropriate rules to allocate profits (including rules that govern the accumulation of capital and reserves) is considered an important part of central bank’s independence from the government… A thorny ongoing issue on this front has been that of the rules for surplus transfer from the Reserve Bank to the government.” Mr. Garg, on the other hand, expressed confidence in meeting the fiscal deficit target of 3.3% for the current financial year, and added that the government has actually foregone Rs. 70,000 crore of budgeted market borrowing this year. Fiscal deficit He pointed out that the government’s fiscal deficit in FY 2013-14 was 5.1%. From 2014-15 onwards, the government has succeeded in bringing it down substantially, he said. The Economic Capital Framework, as per an RBI annual report, was formulated to assess the RBI’s capital and internal reserves position in a structured and systematic manner. In its annual report for 2014-15, the central bank had said, “The exercise to put in place an economic capital framework is a challenging one as the Reserve Bank plans to cover not only the risks in its balance sheet but also its ‘contingent risks’ which arise from its public policy role in fostering monetary and financial stability.”
