RBI should emulate FM’s transparency if it fails to meet targets

Instead of promising a fiscal deficit of 3.3% of gross domestic product (GDP) in 2019-20, it presented a revised estimate of 3.8%, and instead of the earlier fiscal deficit projection of 3% for 2020-21, it proposed 3.5% of GDP.

Explaining the fall in the Fiscal Responsibility and Budget Management (FRBM) Act and seeking to use the escape clause, Sitharaman said, the growth in revenue collection was sluggish.

At the time, the finance minister criticized and chastised the government for failing to adequately justify deviations from the targets specified by the FRBM Act, and contained the conditions they used to invoke the escape clause.

However, within weeks, none of these mattered as the pandemic, the resulting lockdown, and their impact on the economy blew up the government’s fiscal consolidation roadmap.

Fiscal deficit widens to 9.3% in 2020-21 as tax collections take a hit despite increased spending on Covid-19 relief. The fiscal deficit of the Center in 2021-22 was 6.7% of GDP. It is going to be 5.9% of GDP this year.

The point, however, is that the Finance Minister has not once shied away from explaining in Parliament why she has fallen short of her commitments to the fiscal deficit target specified by law.

He let analysts examine the implications and did not try to stifle public debate on the matter, even when fiscal hawks criticized the slippage. Yes, the FRBM Act obliges the government to be transparent, and it does not try to enforce national economic security by breaking the law.

The Reserve Bank of India (RBI), however, does not believe in transparency, it appears. The central bank failed to meet the flexible retail inflation target of 2% to 6% for three consecutive quarters between January and September 2022.

The central bank subsequently reported this failure to the government in writing, as required under the amended RBI Act of 1934. The provisions of the Act require the RBI to list the remedial actions to be taken to bring inflation back to the target and estimate the time it will take to achieve this.

But Parliament has not been able to debate the RBI’s failure or the steps taken in response because the central bank’s clarification letter is being kept secret.

Both the government and the RBI categorically refuse to be transparent about the clarification or allow Parliament to debate the matter, citing reasons that range from confidentiality clauses to lack of a legal requirement to release it Are.

Mint inquired on the matter under the Right to Information (RTI) Act, but the central bank in its reply refused to disclose the measures being taken to curb inflation.

In December, the RBI had for the first time rejected Mint’s RTI request without giving reasons. When Mint appealed against this decision, the Appellate Authority asked the Central Public Information Officer (CPIO) to review the reply. The response gives bizarre reasons in defense of opacity.

First, the central bank said that public disclosure of confidential correspondence from the RBI to the government, especially those involving remedial action, “could dash expectations and disrupt monetary policy transmission.” interests, RBI said.

It must be said that this is nothing but intimidating. How can public debate on the efficacy of monetary policy hurt the economic interests of the state? Is it not encouraged on matters of fiscal policy?

The RBI’s second excuse – that it has no legal requirement to make the information public – is a weak line of argument. In response to Mint’s efforts, RBI CPIO Manish Kapoor said, “The information is exempt from disclosure under section 8(1)(a) of the RTI Act.”

It would be in the public interest to make the letter public. If the RBI decides to be as transparent as Sitharaman is about the fiscal deficit, the risk premium on government borrowing could potentially fall, reducing the cost of government borrowing, resulting in savings to the exchequer and currency. There will be smooth functioning of the markets.

RBI has come up with a third excuse for lack of transparency. Governor Shaktikanta Das, who played a key role in demonetisation and passed amendments to the RBI Act to introduce the inflation targeting regime, has taken refuge in the bureaucracy, saying the clarification letter was a “privileged” communication between the government and the central bank. Is.

It is difficult to understand what the RBI is trying to achieve by its secrecy around inflation, which affects every Indian.