Government Tensions: Did The Finance Ministry Statement Do Enough To Calm Nerves?

RBI governor Urjit Patel may consider resigning: sources

RBI governor Urjit Patel may consider resigning: sources

"Even the RBI board is being sought to be stuffed in a particular direction, which would prompt the discerning people to look askance and make it hard for RBI to frame policies", the union said in the letter.

Last week, RBI deputy governor Viral Acharya lashed out at the Central government, saying it was trying to undermine the independence of the central bank.

The government in a released statement said, "Autonomy for the Central Bank, within the framework of the RBI Act, is an essential and accepted governance requirement".

These issues were detailed in a speech by RBI deputy governor Viral Acharya in a speech on Friday, which, in many ways, brought the differences between the RBI and the government into the public domain. Sentiments are already weak in the market.

Finance Minister Arun Jaitley on Tuesday blamed the central bank for failing to stop a lending spree during 2008-2014 that left banks with $150 billion of bad debt.

New Delhi:The Indian government has invoked never-before-used powers under the Reserve Bank of India (RBI) Act which allow it to issue directions to the central bank governor on matters of public interest, at least two business publications reported on Wednesday.

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"A tug-of-war between the central bank and government has occurred in the past, with exchanges usually heating up in a tough economic environment".

"The statement is ambiguous and does not fully clarify the issues at hand", said A. Prasanna, chief economist at ICICI Securities Primary Dealership in Mumbai.

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. 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.

"The government never makes public the subject matter of those consultations". Only final decisions are communicated.

This section has never been invoked in the history of independent India despite numerous clashes between the government and the RBI over the years. "There have been talks with the RBI on these issues, but invoking Section 7 (1) is something that has not come up yet but we need to also ensure that industries are not killed", he added. "The Government will continue to do so", Finance Ministry statement said. "It shows that government is hiding facts about the economy and is desperate".

CNBC-TV18 has reached out to the RBI and the Prime Minister's Office, and their comments are awaited.

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