RBI autonomy is ‘essential, accepted governance requirement’: Finance Ministry

RBI autonomy is ‘essential, accepted governance requirement’: Finance Ministry

"Government of India has nurtured and respected this", it said in the statement.

In August, the government inducted RSS ideologue S. Gurumurthy and businessman Satish Kashinath Marathe on the RBI board, in a move that was widely seen aimed at influencing the central bank's decision-making. This section has never been invoked before, not even during India's most trying economic crises. Governments that do not respect central bank independence will sooner or later incur the wrath of financial markets, ignite economic fire, and come to rue the day they undermined an important regulatory institution; their wiser counterparts who invest in central bank independence will enjoy lower costs of borrowing, the love of global investors, and longer life spans.

The government wants RBI to carve out exemption for power companies under the PCA framework that outlines triggers for declaring a loan account as stressed or NPA, sources said adding the second letter pertained to use of RBI's capital reserves for providing liquidity to the market and a third letter was for relaxing constraints on banks for loans to small and medium enterprises (SMEs).

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. Government has never made public the subject matter of those consultations. While the Economic Affairs Secretary declined to comment on whether Section 7 had been invoked, the official statement also made no mention of it.

Top sources said three consultations were sent to the RBI in August, September and in the first week of October by the finance ministry. What is the need to invoke the provision now?

The government today confirmed "extensive consultations with RBI" as it responded to reports that it had invoked never-before-used powers to issue directions to the central bank governor on matters of public interest.

"Only the final decisions taken are communicated".

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. "It shows that government is hiding facts about the economy and is desperate (sic)", he said in a series of tweets. The government, through these consultations, places its assessment on issues and suggests possible solutions.

"Still it does sound like the finance ministry is trying to dial down the temperature".

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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