Nehruvian NDA? Government attempts to give directions to RBI recall Nehru’s command and control style

It is common among BJP circles to debunk the Nehru-Gandhis and hold them responsible for most failings of the Indian republic, accompanied by wistful imaginings of how much better off India would have been if Sardar Patel instead of Jawaharlal Nehru had been India’s first prime minister. It is ironical, therefore, that some quarters in the finance ministry have taken to citing Nehru in order to shore up NDA government’s point of view in its current confrontation with RBI.

One of Nehru’s weakest suits, after all, was his championing of the command and control style of government which arguably held up India’s development. However, when the government invokes the never-used-before Article 7 which allows it to give directions to the RBI it is precisely that hoary Nehruvian legacy the government appears to fall back upon – Nehru, too, had argued “certainly it [RBI] is autonomous, but it is also subject to the central government’s directions”.

One of the biggest areas of contention is that the government wants to use up a third of RBI’s reserves – a sum of Rs 3.6 lakh crore – which RBI feels will adversely impact the country’s macroeconomic stability. Former RBI governor Raghuram Rajan has likened a central bank to a seat belt for the government which is the driver, arguing that once the government has entrusted RBI with ensuring financial stability it should permit RBI to play that role. RBI governor Urjit Patel came under withering criticism for going along with the government’s disastrous demonetisation plan. While RBI must give the government a patient hearing in the current imbroglio, if it feels the government is looking for poll-eve bonanzas without much thought for what happens to the country’s macroeconomic stability after the polls, it must stick to its guns and say no. The government too should know that driving without a seat belt enhances the possibilities of a serious crash. Any move to browbeat RBI will have severe economic repercussions.