Centre nominates D. K. Mittal on RBI's central board

In a move that indicates that the Central Government may have more say in the functioning of the Reserve Bank of India, the former has nominated one more director on the central board of directors of the banking regulator.

Mr D. K. Mittal, Secretary, Department of Financial Services, Ministry of Finance, is the second government nominee on the RBI board.

This is the first time that the Government is having two nominees on the RBI's central board. Hitherto, the Secretary (Department of Economic Affairs), Ministry of Finance, was the only government nominee director on the RBI board.

Besides Mr Mittal, the other government nominee on the RBI board is Mr R. Gopalan, Secretary (Department of Economic Affairs), Ministry of Finance. Following this nomination, the RBI's central board now has 18 directors.

Mr Mittal's nomination follows the recent amendment to the RBI Act, 1934, allowing the Central Government to nominate two Government officials to the central board instead of one.

Central bank autonomy

The RBI Governor has been underscoring the importance of central bank autonomy at various public forums.

In a recent speech, the Governor emphasised that the fundamental responsibility of central banks for price stability should not be compromised. He pointed out that central banks should have a lead, but not exclusive, responsibility, for financial stability. “The boundaries of central bank responsibility for sovereign debt sustainability should be clearly defined. In the matter of ensuring financial stability, the government must normally leave the responsibility to the regulators, assuming an activist role only in times of crisis,” said Dr Subbarao at the RBI's second international research conference.

Fiscal consolidation

The government nomination of one more director comes even as the RBI, in its third quarter review of the monetary policy (on January 24), has warned that the fiscal deficit of the Government could potentially crowd out credit to the private sector.

Moreover, slippage in the fiscal deficit has been adding to inflationary pressures and it continues to be a risk for inflation.

“Considering the egregious implications of large fiscal deficits, which are well-known, there is an urgent need for decisive fiscal consolidation, which will shift the balance of aggregate demand from public to private, and from consumption to capital formation.

“This (consolidation) is critical to yielding the space required for lowering rates without the imminent risk of resurgent inflation.

“The forthcoming Union Budget must exploit the opportunity to begin this process in a credible and sustainable way,” the Governor explained.

kram@thehindu.co.in