Finance Ministry Says RBI Autonomy 'Essential'

Amid reports of its mounting tension with the RBI, the Finance Ministry Wednesday said the government has "nurtured and respected" autonomy of the central bank and has been holding extensive consultations with it on many issues. 

The ministry issued the statement in an attempt to dampen a spat between the government and the central bank."The autonomy for the central bank, within the framework of the RBI Act, is an essential and accepted governance requirement. Government of India has nurtured and respected this," the ministry said in a statement.

Both the government and RBI, in their functioning, have to be guided by public interest and the requirement of the Indian economy, it said. "For the purpose, extensive consultations on several issues take place between the government and the RBI from time to time."

The comments came after reports RBI governor Urjit Patel was on the verge of resigning over the breakdown in relations with the government. According to some media reports, he was considering resigning from his post sparking a sell-off in rupee and bonds. 

The statement however did not mention of 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 of India has never made public the subject matter of those consultations. Only the final decisions taken are communicated," the statement said. "The government, through these consultations, places its assessment on issues and suggests possible solutions. The government will continue to do so," it added. 

The government has invoked never-before-used powers under the RBI Act that allow it to issue directions to the central bank governor on matters of public interest, the Economic Times newspaper reported.

It said the government had sent letters to the RBI governor in recent weeks exercising powers under section 7 of the RBI Act on issues ranging from liquidity for non-bank finance companies, capital requirements for weak banks and lending to small- and medium-sized companies.

Section 7 says that 'the Central Government may from time to time give such directions to the Bank as it may, after consultation with the Governor of the Bank, consider necessary in the public interest', a statute that has not been used in independent India, according to the Economic Times.

Former Union Finance Minister P Chidambaram also slammed the government today and blamed it for being desperate and hiding facts about the economy