Published: Wed, October 31, 2018
Money | By Ethel Goodwin

Finance Ministry declares truce, but signals displeasure at RBI's behaviour

Finance Ministry declares truce, but signals displeasure at RBI's behaviour

Meanwhile, it also emerged that the government had invoked Section 7 of the RBI Act at least invoked 3 times.

RBI deputy governor Viral Acharya, pressing for independence of the central bank, said that lack of autonomy prevents it from regulating public sector lenders, the Times of India reported. Asking the government to stop arm-twisting the central bank, the letter said both should talk and sort out the issues, instead of trying to ride roughshod over RBI and warned that "what they (government) are trying is at the expense of the nation". What's interesting is that the following Section of the RBI Act has never been used by any government post the independence of India.

In such a situation, the law adds, the general supervision and "direction of affairs and business of the bank will 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". For the objective, extensive consultations on several issues take place between the government and the RBI from time to time. Regardless of the speculations in media, there are reasons to believe that government is very unlikely to go for the extreme step of invoking Section 7, which would add to its headaches in the financial markets.

BJP slammed Rahul Gandhi for his criticism against Prime Minister Narendra Modi over the RBI-Centre rift, and said that it reflects Congress party's grounding, "which is fast eroding in national politics". Experts and observers noted that before Patel, others, including Raghuram Rajan, Arvind Panagaria and Viral Acharya pointed at serious problems with the way this government approached economic policies and implementation.

Voicing support for Patel, Bharatiya Janata Party (BJP) leader and Rajya Sabha MP Subramanian Swamy on Wednesday said if the governor decides to leave, the blame would fall on Jaitley.

Patel and his deputy governors are expected to meet top finance ministry officials on Friday.

Sources in the ministry of finance told Firstpost that Section 7 of the RBI Act has not been invoked.

The Finance Ministry on Wednesday acknowledged that the autonomy of the Reserve Bank of India (RBI) is an "essential and accepted governance requirement", but it neither confirmed nor denied that it had issued directives to the bank under Section 7 of the RBI Act.

The micro, small and medium enterprises (MSME) sectors and power producers have been the worst affected, and have sought more time for resolution.

While Finance Minister Arun Jaitley met Patel on Tuesday at a scheduled meeting, there was no discussion about the rift, according to an official who asked not to be identified citing rules.

They said the RBI should not air confidential matters in public and expressed fears it could tarnish India's image among investors.

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