Well, if you thought govt has backed off in its tussle with RBI think again. This news in Indian express https://indianexpress.com/article/india/govt-wants-rs-3-6-lakh-crore-from-rbi-a-third-of-its-reserves-central-bank-says-no-5435504/ is a sad reminder of changing realities in world run by strong men. Demonetisation was all about the expected windfall of USD 50 billion to the Indian govt which did not play out the way it was envisaged. This is the same amount which govt is now asking RBI to pay on the pretext of paring down the excess capital . Different govt agencies and committee have observed that RBI is holding excess reserve which can be used for the greater good of the society, for e,g recapitalizing PSU bank, building infrastructure etc.
There is no doubt that cash starved govt is boxed into corner in run up to election and any access to large amount of LIQUIDITY will make their task easier. On the other hand RBI’s stance on this issue has not got desired media attention as institutions voice world over is getting drowned out by strong personalities.
How will this get solved… Dr Acharya (deputy governor)has already shot a warning to govt,not to meddle with central bank independence and that financial markets will not take kindly to this interference . I reckon the day is not far when RBI governor Dr Urjit Patel will find his position untenable with his beliefs and will step down before seeing any harm done to the institution .