RBI autonomy essential, says finance ministry amid rift with central bank

Open rift between RBI Modi govt as official warns of catastrophe

Open rift between RBI Modi govt as official warns of catastrophe

Warning of more "bad news", former finance minister and senior Congress leader P Chidambaram said, "If, as reported, Government has invoked Section 7 of the RBI Act and issued unprecedented "directions" to the RBI, I am afraid there will be more bad news today", he said.

Government officials were "very upset" with the RBI for publicly talking about a rift with the government, fearing it could tarnish the country's image among investors, Reuters reported.

As per a report by Economic times, in recent weeks, separate letters have been sent to RBI Governor Urijit Patel.

Tensions between the RBI and the government have 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. Reserve Bank case emphasising that "the Reserve Bank, apart from it being a reasonable body, is answerable to the Central Government, and the public opinion is certainly strong and vocal enough for it to heed".

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There have also been media reports that the government has invoked never-before-used powers under the RBI Act that allow it to issue directions to the central bank governor on matters of public interest. Economic Affairs Secretary Subhash Chandra Garg declined to comment, while Finance Secretary Hasmukh Adhia said it was for the Department of Economic Affairs to clarify on Section 7 of the law. The association said Acharya's comments about government's interventionist role vis-àvis the RBI have created a flutter across the nation. Arguing against the Centre's proposal, the RBI had said, "The digital payments have made good and steady progress".

The letters are the latest flare-up in a dispute between the central bank and the government. The government believes that easing restrictions will boost lending and increase growth. While there are reports suggesting that the Centre has already invoked Section 7 of RBI Act, it still remains unclear on how it will be used. "And that's why, when several regulators publish their approach papers or tentative drafts, they hold hearings, meet individuals, meet groups of stakeholders together and improve upon what is being said".

Finance Minister Arun Jaitley, meanwhile, has blamed the RBI's inability in identifying the problem of NPAs in Indian banks and lack of timely measures for the current crisis-like situation in the banking sector. "The government respects the autonomy and independence of the RBI but they must understand their responsibility", the official added.

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