RBI Governor Urjit Patel may consider resigning after rift with government

Urjit Patel

The finance ministry said that both the government and the Reserve Bank of India (RBI) have to be guided by public interest and the requirements of the Indian economy, for which extensive consultations take place between them. The deputy governor even helpfully used a cricketing analogy to simplify the reasons that central banks and governments will always have different outlooks.

Officials in the Finance Ministry said three letters have been sent to the RBI, citing Section 7, without actually implementing it.

Jaitley had on Tuesday blamed the RBI for failing to stop a lending spree between 2008-2014 that left banks with huge bad debts, inflaming a row that recently erupted between the government and the central bank. That has led to a liquidity crunch in the entire non-banking finance sector. What's interesting is that the following Section of the RBI Act has never been used by any government post the independence of India. In his speech, he warned that undermining the central bank's independence could be "potentially catastrophic".

As The Wire reported in September 2018, the Allahabad High Court, which was hearing petitions filed by power companies against the central bank's stricter NPA (non-performing asset) norms, had asked the Centre to examine the possibility of advising the RBI under Section 7. "Even the RBI board is being sought to be stuffed in a particular direction, which would prompt the discerning people to look askance and make it hard for RBI to frame policies", the union said in the letter.

Union Finance Minister Arun Jaitley during a press conference in New Delhi.

More news: José Mourinho criticises national teams over Manchester United injuries

Though differences between the government and RBI have peaked this year over a number of issues, including the central bank's handling of the Nirav Modi crisis and the latter's firm stand on bringing weak banks under prompt corrective action, the latest reason for the escalation is the liquidity crisis being faced by NBFCs.

"The government never makes public the subject matter of those consultations". Section 7 allows the govt to override RBI's autonomy.

"Only the final decisions taken are communicated". What is the need to invoke the provision now? "The government will continue to do so", it added. "It shows that the government is hiding facts about the economy and is desperate", he said in a tweet.

Reserve Bank of India Deputy Governor Viral Acharya's speech last week was seen by many as a clear indication of the friction between the government and the central bank, which has now properly spilled over into the public domain.

The former finance minister also attacked the government after it issued a statement to clarify things that are going on between itself and the RBI.

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