Reportedly, the government officials were hurt that Viral Acharya chose to talk about the rift between government and RBI in public.
As the financial crisis deepens in the country, the rift between the Modi government and the Reserve Bank of India seems to be widening more. According to the reports doing rounds, the RBI governor Urjit Patel may consider resigning from his post.
The government and the RBI came to loggerheads after the deputy governor Viral Acharya hinted in a speech on Friday that the government is trying to hinder the independent working of the institution. Acharya warned that undermining a central bank’s independence could be “potentially catastrophic”. His warning came amidst the reports that government is pressurising RBI to relax its policies and trying to reduce its powers.
In a speech to top industrialists, he even cited Argentina’s 2010 economic crisis as an example. Acharya recalled Argentine government’s meddling in its central bank’s affairs led to a surge in bond yields which in turn hurt the South American economy.
The spat became more public on Tuesday when Finance Minister Arun Jaitley blamed the institution for “lending spree” during UPA era. While speaking at an event in New Delhi, Jaitley said, “The central bank looked the other way when banks gave loans indiscriminately from 2008 to 2014.”
#GovtVsRBI | Rift between RBI & govt widens after Oct 30's FSDC meeting.
— CNBC-TV18 (@CNBCTV18Live) October 31, 2018
Reportedly, the government officials were hurt that Viral Acharya chose to talk about the rift between the government and the central bank in public. According to a CNBC TV18 report, a source said that there is an “irreversible breakdown between RBI governor and the government”.
Meanwhile, a report in ET says that the government has invoked powers under RBI act in an unprecedented development. According to the report, separate letters were sent to the RBI by the government which suggest that the government might have invoked Section 7 under the RBI Act. It empowers the government to consult and give instructions to the governor to act on certain issues that the government considers serious and in public interest.
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
— P. Chidambaram (@PChidambaram_IN) October 31, 2018
Commenting on the current crisis, former Finance Minister P Chidambaram tweeted, “Warning of more “bad news”, former finance minister and senior Congress leader P Chidambaram said, “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.” He also pointed out that the section was not invoked even during the economic crisis of 1991, 1997, 2008 or 2013.
Earlier, former RBI governor Raghuram Rajan was said to have differences on policy matters with the Modi government.