New Delhi: The Finance Ministry said on Wednesday that the autonomy for the Reserve Bank of India “is an essential and accepted governance requirement”. Its brief statement said that both the Government and the RBI 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. (Also read: ‘Centre Hiding Facts on Economy,’ Says Chidambaram) Also Read - RBI Slaps Penalties on Bank of India, Karnataka Bank For Non-compliance With Certain Norms
“The Government has never made public the subject matter of those consultations. 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,” the statement said. Also Read - Coronavirus Recession: India's GDP Likely to Contract 5% in FY21: Crisil
However, it did not mention the Government citing the never-before-used power of issuing directions to RBI Governor to seek a resolution to differences with the Central bank. The Government has sent at least three letters on different issues under Section 7 (1) of the RBI Act that gives it powers to issue any direction to the Central bank Governor on matters of public interest. Also Read - Malls Lose Rs 90,000 Crore in 2 Months, SCAI Seeks Adequate Relief
The statement follows Finance Minister Arun Jaitley’s criticism of the Central bank for failing to check indiscriminate lending during 2008 and 2014 that led to the present bad loan or NPA crisis in the banking industry. “You see (between) 2008 to 2014, after the global economic crisis, to keep the economy artificially going, banks were told open your doors and lend indiscriminately,” Jaitley had said at the India Leadership Summit organised by US-India Strategic Partnership Forum on Tuesday. “The Central bank looked the other way, there was indiscriminate lending,” he said.
The Minister’s comment had come in the wake of RBI deputy Governor Viral Acharya had said past Saturday, that governments that do not respect Central bank’s independence would sooner or later incur the wrath of financial markets. “Undermining a central bank’s freedom could be ‘potentially catastrophic‘,” said Acharya while, delivering a hard-hitting speech in Mumbai. His statement fuelled speculations that all wasn’t well between the Government and the RBI.
Notably, the RBI and the government have been apparently differing on approach to certain issues, such as those pertaining to payment systems regulator and Prompt Corrective Action (PAC) norms for banks. “Wiser politicians will give a central bank necessary autonomy so that they reap electoral benefits of stable macroeconomic conditions which such independence will bring,” PTI quoted Acharya as saying.