As per it, both the government and the central bank, in their functioning, have to be guided by public interest and the requirements of the Indian economy.
Amid reports of Reserve Bank of India (RBI) governor Urjit Patel resigning from his position, the Ministry of Finance has clarified that 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," said the ministry in an official note today. It observed both the government and the central bank, in their functioning, have to be guided by public interest and the requirements of the Indian economy.
"For the purpose, extensive consultations on several issues take place between the government and the 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," said the note and added, "Only the final decisions taken are communicated. The government, through these consultations, places its assessment on issues and suggests possible solutions. The government will continue to do so."
RBI deputy governor Viral Acharya, last week, had called for preserving the RBI’s autonomy, which led to the eruption of war of words between the central bank and the finance ministry.
Finance Minister Arun Jaitley, yesterday, accused the central bank for failing to stop a lending spree between 2008-2014 that left banks with huge bad debts, which is being seen as a fuel to the fire.
The RBI has been pushing for more powers to clean up the banking system, which is saddled with bad debts. In his speech on October 26, Acharya had defended the central bank’s independence, saying its autonomy would be strengthened by having regulatory control over state-run banks.
Media reports say RBI is not very happy with the government’s appointed directors pressing for more liberal view on interest rates for micro, small and medium enterprises (MSMEs).
Source: Media reports