Amid reports of a rift between the Central government and the Reserve Bank of India, as well as frenetic speculation that RBI Governor Urjit Patel may resign from his post, the Ministry of Finance has issued a statement, following which Patel has also acted.
The Central Bank Governor has called for a board meeting on November 19 to discuss the pending issues and also discuss on the issues that have led to a tug-of-war kind of situation between RBI and government.
Meanwhile, the finance ministry said on Wednesday that it respects the central bank’s autonomy.
“The autonomy of the central bank, within the framework of the RBI Act, is an essential and accepted governance requirement. Governments in India have nurtured and respected this,” the economic affairs department of the finance ministry said in a statement.
The government did not deny reports that it invoked Section 7 of the RBI Act 1934 to initiate discussions on various issues, including easing prompt corrective action (PCA) framework and providing liquidity to the non-banking finance companies (NBFCs).
Finance Ministry issues a statement
From Finance Ministry's statement, on the topic of RBI's autonomy: "The autonomy for the Central Bank, within the framework of the RBI Act, is an essential and accepted governance requirement. Governments in India have nurtured and respected this."
(From Finance Ministry's statement:) "Both the Government and the Central Bank, in their functioning, have to be guided by public interest and the requirements of the Indian economy."
(From Finance Ministry's statement:) "For the purpose (public interest and requirements of Indian economy), extensive consultations on several issued take place between the Government and RBI from time to time. This is equally true of all other regulators. Government of India has never made public the subject matter of those consultations. Only the final decisions are communicated. The government, through these consultations, places its assessment on issues and suggests possible solutions. The government will continue to do so."
Section 7 of RBI Act
The government statement comes after reports that it has invoked never-before-used powers under Section 7 of the RBI Act that empowers the government to consult and give instructions to the central bank governor to act on certain issues that the government considers serious and in public interest.
What led to the current chaos?
The rift between the RBI and the government has spilled into the public domain after Deputy Governor Viral Acharya said last week that undermining central bank independence could be "potentially catastrophic", indicating the authority is pushing back against government pressure to relax its policies and reduce its powers ahead of a general election due by May.
Recently, Finance Minister Arun Jaitley blamed the central bank for failing to stop a lending spree during 2008-2014 that left banks with $150 billion of bad debt.
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