Autonomy of Reserve Bank ‘essential’, says finance ministry
The finance ministry on Wednesday said that the government respects the autonomy of the Reserve Bank of India amid reports of differences with the central bank.
“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. Both the Government and the Central Bank, in their functioning, have to be guided by public interest and the requirements of the Indian economy,” the statement said.
“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. The government of India 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,” it added.
As per the sources Finance Ministry and RBI are said to have differed on the central bank’s handling of weak public sector banks, tight liquidity in the market and ways of resolving bad loans in the power sector.
It is reported that the finance ministry wrote three separate letters in the past few weeks to RBI on issues ranging from Prompt Corrective Action (PCA) framework to liquidity management and sought consultation under Section 7 of the RBI Act.
Former Finance Minister and senior Congress leader P Chidambaram warned of “more bad news” if indeed the government were to invoke Section 7 of the RBI Act.
“If, as reported, the 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. We did not invoke Section 7 in 1991 or 1997 or 2008 or 2013. What is the need to invoke the provision now? It shows that the government is hiding facts about the economy and is desperate,” he tweeted.