Here are 10 updates on the development:
1) The decision to create a Public Debt Management Agency by stripping the RBI of authority to regulate the government bond market was announced in the Budget.
2) The RBI is the government's fundraiser, it issues new bonds and buys old ones to regulate the money supply in the economy. It also has the formal mandate to control inflation in the country.
3) These two roles lead to a conflict of interest in the working of the RBI, which the new agency could have removed, according to Mr Jaitley. The formation of a Public Debt Management Agency was seen as the biggest overhaul of financial regulation in decades.
4) The finance minister's proposal had the backing of most experts. The formation of a new agency to manage public debt would help lower borrowing costs, expand bond markets by attracting retail investors and improve the transmission of monetary policy, experts say.
5) The government's move had reportedly become a source of friction between the RBI and the finance ministry. Many in the RBI believed that the formation of a new agency would have crippled the central bank and interfered with its monetary policy, sources say.
6) A group of RBI officials had reportedly written to lawmakers and state chief ministers expressing concern over the government's decision to establish a new debt management agency.
7) "... There have been concerns that a central bank being the public debt management authority may be lax in some of its functions ... I have always believed those concerns [are] not entirely unwarranted but perhaps overblown," Dr Rajan has been quoted as saying.
8) The government would now consult the RBI and come up with a detailed roadmap for a new debt management agency, Mr Jaitley said yesterday.
9) Dr Rajan and Mr Jaitley have held divergent views on a host of issues ranging from lowering interest rates to how to kickstart growth in the economy.
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