Autonomy of Reserve Bank 'essential', says finance ministry

Autonomy of Reserve Bank 'essential', says finance ministry

Autonomy of Reserve Bank 'essential', says finance ministry

A recent suggestion to create a payment regulator outside the purview of the Reserve Bank has also been opposed by the RBI. If it's actually invoked, it could undermine the RBI's autonomy and RBI Governor Urjit Patel reportedly may step down. It quoted another source as saying that there is "irreversible breakdown between RBI governor and the government". Sentiments are already weak in the market. The Economic Affairs Secretary on Wednesday, however, refused to comment anything with respect to it.

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. In contrast, a central bank plays a test match, trying to win each session but, importantly, also survive it so as to have a chance to win the next session, Acharya had said.

The government stressed on Wednesday that the autonomy of the Reserve Bank of India (RBI) is "essential" as it sought to calm investors anxious about a growing public quarrel with the central bank.

Former Finance Minister P Chidambaram tweeted, "If, as reported, 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". The statement issued by the union said, the hiatus has widened now and the deputy governor has spoken more "in disgust and despondency" due to continuous nibbling by the government and the finance ministry.

The finance ministry said that both the government and the Reserve Bank of India (RBI) have to be guided by public interest and the requirements of the Indian economy, for which extensive consultations take place between them.

Section 7 gives the Indian government wide-ranging powers to give directions to the RBI in public interest.

Public sector banks: Following the Nirav Modi-Punjab National Bank case, the RBI and Centre began pointing fingers at each other. These letters were on the government's desire for power sector non-performing assets to be reclassified, the issue of the RBI giving dividends to the Centre, and the government's desire for the Prompt Corrective Action norms applicable for certain bank be eased so as to increase lending for the MSME sector, respectively.

"We did not invoke Section 7 in 1991 or 1997 or 2008 or 2013. Only the final decisions taken are communicated", the statement said. What is the need to invoke the provision now? "The Government will continue to do so", the Finance Ministry stated. Neither the government nor the RBI has signaled any thaw of any of these specific issues yet.

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