"In Public Interest", Says Centre, On Talks With RBI Amid Rift: 10 Points
- "Both the government and the central bank, in their functioning, have to be guided by public interest and the requirements of the Indian economy. For the purpose, extensive consultations on several issues take place ...The autonomy of the Central Bank, within the framework of the RBI Act, is an essential and accepted governance requirement. 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 Finance Ministry said in a statement.
- Earlier in the day, media reports claimed the government had invoked a never-before-used power granted to it under Section 7 of the RBI Act to seek a resolution to differences with the central bank.
- Section 7 of the Reserve Bank of India Act states: (1) 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.(2) Subject to any such directions, the general superintendence and direction of the affairs and business of the Bank shall be entrusted to a Central Board of Directors which may exercise all powers and do all acts and things which may be exercised or done by the Bank.
- Friction between the government and the RBI was out in the open after Deputy Governor Viral Acharya, last Friday, publicly rebuked the government for interfering in the top lender's decision-making process. He cited the example of the Argentinian crisis of 2010 that badly hurt the South American economy.
- "Governments that do not respect central bank independence will sooner or later incur the wrath of financial markets, ignite economic fire, and come to rue the day they undermined an important regulatory institution," Mr Acharya had said, adding that undermining a central bank's independence could be "potentially catastrophic".
- The comments from the second-in-command at the RBI upset the government, news agency Reuters quoted officials as saying.
- Later, Finance Minister Arun Jaitley went as far as to say that the RBI "was looking the other way" while banks were lending indiscriminately. "During 2008-14 after the global economic crisis to keep the economy artificially going, banks were told to open their doors and lend indiscriminately," he said in a speech.
- "The central bank looked the other way. I am surprised that at that time the government looked the other way, the banks looked the other way, I do not know what the central bank was doing. It was a regulator of these. They kept pushing truth below the carpet," Mr Jaitley added.
- The government and the RBI have been engaged in a tug of war over whether the central bank should part with some of its Rs 3.6 lakh-crore reserves to fund the country's fiscal deficit. The government is scouring for funds as it faces a shortfall in expected revenues, and divestment targets have become hard to meet due to weakened market conditions.
- Meanwhile, the rupee breached the 74-mark against the US dollar after a gap of more than two weeks. The Sensex, however, recovered over 400 points in afternoon trade, after swinging between gains and losses earlier in the session. The 10-year benchmark bond yield rose to 7.87 per cent from its previous close of 7.83 per cent. (With agencies inputs)
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