There is more than a whiff of convenience to the Reserve Bank clearing an interim dividend of Rs 28,000 crores, taking the financial year’s dividend from the banking regulator to Rs 68,000 crores. The record size of the interim dividend announced in February is suggestive of an RBI that is more amenable to the government’s view. But this was expected given the big changes in the bank with the resignation of economist Urjit Patel as governor and the appointment of a retired bureaucrat in his place. As this comes just before the general election, it may be seen as helping the government to meet its commitments to small farmers. The recent surprise cut in the repo rate of 25 basis points was further evidence of a governor and monetary policy committee being accommodative of the government’s wishes.
There shouldn’t be any harm to the nation’s finances if the subsidies and handouts don’t lead to any inflationary pressures. The current low inflation figures, a stabilising rupee and oil prices that have somewhat anchored after a sharp rise may spur the call for another rate cut in April. RBI governor Shaktikanta Das is just getting down to the task of asking banks to transmit lower rates to borrowers so that EMIs come down,benefiting the large middle class. The larger issue is about the caution the RBI has to exercise in not basing its rate and other decisions in alignment with the elections. Macroeconomic factors should be the cornerstone of its guidance rather than pressures brought by the government, though it’s true all governments would like the central bank to toe its line.