The RBI-government rift comes as the rupee is as its weakest. (Reuters)
Highlights
- "Very unfortunate" that RBI made matters public: official in PM's office
- RBI Deputy Governor made strong case for need of autonomy at RBI
- Viral Acharya thanked Urjit Patel for "suggestion" for his speech's theme
The ongoing friction between the Reserve Bank of India and the government has boiled over, with the association of the bank's employees siding with its Deputy Governor on Monday. Last week, Viral Acharya had made a strong case for the need of autonomy at the country's central bank -- his speech had been widely shared on social media. Quoting sources, news agency Reuters reported that the government officials are very upset with the RBI for making the rift public. They fear it could tarnish the country's image among investors, Reuters reported.
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An official, based in Prime Minister Narendra Modi's office, said it was "very unfortunate" that the RBI had made matters public. "The government is very upset. It was not expected from the RBI," Reuters reported the official as saying. "The government respects the autonomy and independence of the RBI but they must understand their responsibility," another official said.
In an explosive speech on Friday, Dr Viral Acharya, the deputy chief of RBI - an institution known for its restraint -- had warned the government of "catastrophe" if it continued trying to undermine the central bank's autonomy. Rash moves, he said, could trigger a "crisis of confidence in capital markets".
The RBI Number 2, who was addressing top industrialists at an event in Mumbai, also thanked his boss Urjit Patel for his "suggestion to explore this theme for a speech", signaling total unity at the institution.
In a statement on Monday, the All India Reserve Bank Employees Association said "undermining the country's central bank was a recipe for disaster which the government must desist". "Let the two talk and sort out the issues instead of the government trying to ride roughshod over the RBI, what they are trying at the expense of the nation," the statement read.
The immediate cause of the government-RBI rift is the government's demand that the central bank ease its lending restrictions on banks that have a low capital base and a massive rise in bad debts. The RBI has identified 11 state-run banks, which have been barred from lending unless they shore up their capital base.
The other contentious issue is interest rates. While the RBI believes it should have sole responsibility of raising or lowering key interest rates to keep inflation in check, the government has expressed displeasure over the RBI increasing interest rates when it wants them lowered to boost spending.
The government's insistence on an independent Payments Regulatory Board also caused friction. In a notification on October 19, the RBI had rejected the demand on the grounds that the payment system -- being a subset of currency -- comes under the banking system.
The 3-year term of Mr Patel, who helmed the Narendra Modi government's controversial demonetisation initiative two years ago, will end in September 2019. He had taken over from Raghuram Rajan, who did not seek a second term - the first not to do so since 1992 - choosing to return to academia in 2016.
The RBI-government rift comes as the rupee is as its weakest and another top institution, the Central Bureau of Investigation, is passing through a crisis - a very public tussle between its two top officers, one of whom has taken the agency to court. The opposition has roundly criticized the government's role in the matter. Director Alok Verma's number 2, Rakesh Asthana, has been dubbed Prime Minister Narendra Modi's "blue-eyed boy" by Congress chief Rahul Gandhi.
The Congress chief on Monday tweeted, "Nice that Mr Patel is finally defending the #RBI from Mr 56. Better late then never. India will never allow the BJP/ RSS to capture our institutions".
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