Editor's Pick of the Day - Spoils shared as RBI and government call for truce

Eighty years is a long time to maintain a status quo and guard a financial institution and the cash reserves of the nation from injudicious political interference. As is common knowledge, there has been government pressure on the RBI to accede to a range of demands, provoking RBI Deputy Governor Viral Acharya to issue a warning in October that the undermining of the central bank's independence could be "catastrophic."

On November 9, according to multiple news sources, the government had said that it was discussing an "appropriate" size of capital reserves that RBI must maintain, but denied that it was seeking a massive capital transfer. The point of contention was simply this: how much reserves should RBI keep locked in its coffers?

As NDTV said, "The people sent to the RBI board by the government want the centre to have access to surplus reserves the RBI has built up - money that could be used for the administration's populist programmes including boosts to rural wages, fuel subsidies and buying crops at a guaranteed minimum price."

Another point of contention was lending to non-banking financial companies and MSMEs because the bank wanted to be tough with the defaulters, while the government wanted the bank to lend more to these sectors in view of the difficulties they faced during demonetization and the implementation of the Goods and Services Tax (GST).

But the long wait to see who will blink first, the RBI or the government has ended because after a nine hour board meeting on November 19, the RBI agreed to set up a panel on sharing surplus reserves.

This decision does not mean that the door is open for the state, but it is a crack in the door. And just like demonetisation, it will have long term ramifications. And it will forever change, even though subtly, the equation between the RBI and the state. For now, to use a newsroom cliche, the markets and investors are also closely watching the developments.

In today's Moneycontrol podcast, we will break down this meeting that may turn out to be momentous in retrospect.