Neither denying nor accepting, the Ministry of Finance has issued a statement saying that extensive consultations on several issues take place between the government and the RBI and only final decisions are communicated.
Ministry of Finance said in a statement issued today, “Both the government and the central bank, in their functioning, have to be guided by public interest and the requirements of the Indian economy. For the purpose, extensive consultations take place between the government and the RBI from time to time. This is equally true of all other regulators.”
Reports this morning quoted sources as saying that the government had sent letters to the RBI governor in recent weeks exercising powers under section 7 of the RBI Act on issues ranging from liquidity for non-bank finance companies, capital requirements for weak banks and lending to small- and medium-sized companies.
Section 7 says that ‘the Central Government may from time to time give such directions to the Bank as it may, after consultation with the Governor of the Bank, consider necessary in the public interest’, a statute that has not been used in independent India.
Sources reported that RBI Governor Urjit Patel may consider resigning from his post given a breakdown in relations with the government.
The government started its explanation by saying that autonomy for the central bank, “within the framework of the RBI Act, is an essential and accepted governance requirement.”