File photo: A security personnel stands guard at the entrance of the Reserve Bank of India (RBI) headquarters in Mumbai. Image Credit: Reuters

Dubai: The Reserve Bank of India’s (RBI) unprecedented payout of $24 billion to the government has created its share of controversy on the likely impact on the independence of central bank.

The latest move by RBI follows a stand-off between the government and abrupt departure of at least one central bank governor and other top officials who quit amid accusations of government interference.

Governor Urjit Patel resigned in December following a public spat with the government accusing it of trying to undermine its autonomy. He was followed in June by deputy governor Viral Acharaya citing the same reasons, although the bank insisted this was unrelated and he had left for personal reasons.

The central bank’s independence has already been called into question after it cut interest rates four times this year to a nine-year low, reportedly under government pressure.

While the opposition parties have called it a raid on RBI’s reserves and an attack on the autonomy of the central bank by the government, economists said a judicious balance between deficit management and fiscal boost could prove critics wrong.

Cautious markets

Indian stocks rose on Tuesday, with the benchmark Bombay Stock Exchange Index, Sensex rising 147.15 points to 37,641.27 and National Stock Exchange Index rising 47.50 points to close at 11,105.35 points. Indian rupee gained 63 paise on Tuesday to close at 71.51 a dollar.

Global rating agency Moody’s on Tuesday said the measures announced by the government to boost the sagging economy would support investors and business sentiments, but domestic and external headwinds would persist over the year.

Support to investors

“We expect that the recent measures announced by the Indian government to offer tax incentives and some reforms across a variety of sectors, in an effort to stimulate slowing economic growth, will provide some support to investor and business sentiment. It will also support acceleration of capitalisation in public sector banks for provision of credit and monetary policy easing,” said William Foster, Vice-President, Sovereign Risk Group, Moody’s Investors Service.

“However, we also expect domestic and external headwinds to persist over the course of the year, resulting in 6.4 per cent real GDP growth in the fiscal year ending in March 2020, before growth picks up to 6.8 per cent next year,” Foster added.