Reserve Bank of India (RBI) board member S Gurumurthy on Thursday said the liquidity problem facing by the country could have been handled if power to print currency was in the hands of the government.
"Government of India has given up the right to print rupee in 2002, so that it cannot print money to infuse liquidity," Gurumurthy, a right-wing ideologue, said while delivering a lecture at an event organised by Vivekananda International Foundation in New Delhi.
Gurumurthy’s comments came on the back of recent tension between the RBI and the government, with the latter nudging the central bank to fix the norm on surplus reserve and transfer the amount after the threshold is set.
RBI declined the government's request and deputy governor Viral Acharya had in a speech last month talked about the independence of the central bank, arguing that any compromise could be "potentially catastrophic" for the economy.
Swaminathan Gurumurthy, a chartered accountant and the co-convenor of Rashtriya Swayamsevak Sangh (RSS) affiliate Swadeshi Jagran Manch, had written to RBI governor Urjit Patel complaining against Acharya's comments on maintaining regulatory autonomy on October 26 speech.
Regarded as a torchbearer of the so-called 'Bharatiya economics', Gurumurthy has strong views on economists educated in Western universities and has in the past criticised their alleged ignorance of the Indian terrain.
Finance ministry also initiated discussion under the never-used-before Section 7 of the RBI Act which empowers the government to issue directions to the RBI governor.
On non-performing assets (NPA) issue, Gurumurthy said it is time to think beyond NPAs and recapitalisation and there is need of comprehensive thinking model.
Gurumurthy also said imposition of tight provisioning norms for bad loans in one go created problems for the banking system.
Following a massive spike in the bad loans, which got speeded up after the note-ban and the hasty implementation of the GST, the RBI had in September 2016 brought as many as 11 state-run banks under the prompt corrective action plan framework to bring down NPAs.
Demonetisation was a corrective step and Indian economy would have collapsed without it, Gurumurthy said, adding that GST was a reformative step taken by the government.
Gurumurthy further said India should not go beyond what has been prescribed in the Basel capital adequacy norms and made a case for enhancing credit for the MSME sector.
On current account deficit (CAD), Gurumurthy said there is a need to bring down it. In September, the government had raised import tariffs on a number of consumer goods to ease the pressure on the rupee and keep the widening CAD on check.
The RBI's board is meeting on November 19.