Too many Twists leading to loss of balance.

"The tussle between India's treasury and its central bank is as old as the central bank itself," wrote Bhattacharya, Bhatia and Devulapalli. A former economist at the Reserve bank (RBI) Anand Chandavarkar " considered RBI to have been more independent during the British Raj than in independent India". Section 58 compels the RBI board to seek "previous sanctions" from the government before formulating rules, Section 30 allows the government to "supersede" the board and Section 7 allows the government to give directions to the board, thus making the RBI an extension of the Finance Ministry. Last year, then Governor of the RBI Urjit Patel resigned prematurely because of undue pressure from political appointees to the board. In a recent book Patel wrote that "Moves to dilute a new bankruptcy law" caused friction with the government. Deputy Governor Viral Acharya, who also resigned, wrote in his book that Patel resigned because of "attempts to undermine the institution's autonomy". "The government wanted the central bank to transfer excess capital as dividend to the treasury, dilute Prompt Corrective Action norms, go slow on defaulters and sought an easy policy that would helped it borrow more, Acharya alludes." The RBI did transfer Rs 1.76 trillion in September last year. "Since independence, seven out of 10 RBI governors have been former finance ministry officials, an analysis of RBI's annual reports shows." The present incumbent Shaktikanta Das is a former IAS officer. Das has slashed interest rate aggressively by 115 basis points, down to 4% to lower borrowing cost of the government. He has announced a moratorium on repayments of loans. Since last December the RBI has conducted 'Operation Twist' in which it buys long term government bonds while selling short term ones, in an effort to bring down yields. To reduce short term yields the RBI conducts Long Term Repo Operations (LTRO) which increases liquidity in banks. Government overdraft has been eased through the Ways and Means Advances (WMA). The RBI is forbidden from financing government spending directly but it has "made some discreet bond purchases in the secondary market", wrote Beniwal and Nag. The RBI conducted dollar swaps with banks, but this will have to be reversed in September at which time it will need some other trick to maintain the flood of liquidity it has unleashed. Panic seems to be setting in. The GDP will shrink and India's potential output will drop, increasing the output gap, the RBI cautioned, and called for "deep-seated wide-ranging reforms to regain losses and return to the path of sustainable economic growth". To guard against risks the RBI transferred "a whopping amount of Rs 73.615 crore (Rs 736.15 billion)" to its Contingency Fund, which has risen to its highest level of Rs 2.64034 trillion. It has been buying dollars to build a buffer against a run on the rupee in case of sovereign rating downgrade. You can either serve the government, or the economy. Can't do both.