With the coming of time there are lot of fights between the government and many deaprtments within. When Raghuram Rajan exited the RBI governor’s office in September 2016 and Urjit Patel was elevated from the deputy governor’s position to the head of the central bank, it was thought that the government-RBI tussle would end. The belief was validated in November 2016 when the demonetisation was announced. RBI under Urjit Patel endorsed demonetisation.
Two years down the line, Urjit Patel’s defence of the government has apparently turned into defiance of the government. Urjit Patel was considered the government’s blue-eyed boy in the RBI as an answer to his rock star predecessor, who stonewalled all attempts of the government to get the bank regulator toe its line.
The government and the RBI are speaking alien languages on the state and direction of Indian economy. On October 26, RBI deputy governor Viral Acharya virtually accused the government of interfering with the working of the central bank.
On the other hand, Union Finance Minister Arun Jaitely blamed the RBI for unmanageable figures of stressed assets saying that it failed to check indiscriminate lending between 2008 and 2014 causing NPA crisis in the banking industry.
Reserve Bank of India (RBI) is uniting internally to fight for the preservation of its autonomy amid face-off with the central government over policy issues. After RBI deputy governor Viral Acharya fired the first salvo, the central bank's employees union on Monday launched an attack against the central government. The power tussle has also taken a political colour with the Congress party siding with RBI and its president Rahul Gandhi tweeting about it.
The growing difference between the North Block and the banking regulator came under public glare when for the first time RBI published a dissent note on its website, expressing its disagreement with the government in setting up a separate payments regulator.
"The Payments Regulatory Board (PRB) must remain with the Reserve Bank and headed by the Governor, Reserve Bank of India," the release on its website stated.
The fragile relationship reached breaking point when the government asked RBI to relax lending restrictions imposed on certain weak banks to tackle their NPAs. Last week, Acharya, a close confidante of RBI governor Urjit Patel said undermining a central bank's independence could be "potentially catastrophic". Lending restrictions are imposed on 11 government-owned banks.
"The risks of undermining the central bank's independence are potentially catastrophic," said Acharya. Rash moves could trigger a "crisis of confidence in capital markets that are tapped by governments and others in the economy," he said.
During the speech, Acharya had three of his fellow deputy governors in the audience. Reflecting unity among the RBI officials, Acharya thanked Patel for his "suggestion to explore this theme for a speech."
On Monday, the All India Reserve Bank Employees Association (AIRBEA) came out in support of the Acharya's concerns over the autonomy of the central bank.
In a press statement, AIRBEA said that "undermining the country's central bank is a recipe for disaster and the government must desist."
Backing the deputy governor, AIRBEA said that "Acharya had spoken more in disgust and despondency due to continuous nibbling by the government and the ministry of finance".
Recently, finance minister Arun Jaitley, in reference to the recent developments in Central Bureau of Investigation, had said that the country is higher than any institution or the government.
AIRBEA said that the government is prone to putting pressure on RBI to fall in line with its expediency. "Hence, this is an intrinsic schism and this is not regime specific," it said.
According to AIRBEA, the observations are not "sudden outbursts" but "was waiting to happen due to a long-simmering discontent". 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 difficult for RBI to frame policies," it added.