The problems between the Central bank and the Centre raised after the meeting held on 23rd of October this year. The issues important form Government’s viewpoint were not addressed in the meeting by the Central bank, which resulted in the widened rift between the duo.
“There was agreement on four of the five agenda items but no resolution was passed,” said a person familiar with the matter. The issues discussed included credit flow to micro, small and medium enterprises (MSMEs) and the liquidity squeeze on non-banking finance companies. There was a sense that the meeting was ended abruptly before key issues raised by some members could be addressed, said the people cited above.
The government expects the next meeting of the board, scheduled for November 19, to address the issues raised by it. Members were informed about the meeting on Wednesday.
‘Modi wants the debts and loans to be cleared by the Central Bank by the elections heading in year 2019, whereas the Central Bank has certain policies to be reviewed whilst’ was the statement approximately given by the present Governor. However, “RBI is not autonomous of its board….It is answerable to the board,” is what the Government says.
The speech by the Deputy Governor Viral Acharya of RBI has further escalated the matter. His speech basically raised three important questions about the reserves, powers and directions of the Central Bank and the regrading the Sec 7 of the RBI Act, respectively.
“Though RBI was independent and free to give out commercial bank licences, it only gave out two bank licences in more than a decade. This failed to create a competitive environment where banks were competing to give loans to small firms. For its part, no government over the last 15 years addressed the issue of the lack of competition in the banking sector either.”, said the RBI union.
Matters took a political turn after the RSS-affiliated Swadeshi Jagran Manch’s leader Ashwani Mahajan said the “Reserve Bank of India governor should work in sync with the government or otherwise resign.” He said, “This entire talk of central bank’s independence is a Western concept. It is not acceptable and feasible here. India is a developing country our main priority is employment and growth of small-scale industries. RBI should stand with government on these issues.”
The Congress has also accused the Prime Minister Narendra Modi government of undermining the RBI’s independence.
Reports of RBI Governor Urjit Patel’s resignation after a breakdown in relations with the government also fuelled the crisis.
This is the first ever time in the Indian history that the issues amongst the two important bodies, one financial and the other political, have lit to this extent. Anyway this is the battle between two knots of single thread, hopefully to be sorted soon in the public benefits.