......The cap on Government borrowing, enforced by the RBI, has been violated by the Government from time to time. This limit was fixed as a mandatory cap. Today, inflation in India has become a function of Government deficit. Under the RBI Act, 1948, “the Central Government may from time to time give such direction to the bank as it may, after consultation with the Governor of the Reserve Bank, consider necessary in the public ‘interest’ ” but it is not mandatory for RBI to provide credit to Government. In the past, Government did intervene or disrupt the functioning of RBI policy, without regard to the RBI.........
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