RBI governor Urjit Patel may resign after rift with govt

Indian Ministry of Finance Keeping a Close Watch on Crypto Sector Development

Indian Ministry of Finance Keeping a Close Watch on Crypto Sector Development

"RBI governor may even consider resigning".

"Both the Government and Central Bank, in their functioning, have to be guided by public interest and the requirements of the Indian economy".

Amid instances of apparent differences between the government and the RBI, Acharya emphasised that undermining a central bank's independence is akin to committing a "self goal" for any government.

Indian Ministry of Finance Keeping a Close Watch on Crypto Sector Development

"Governments that do not respect central bank independence will sooner or later incur the wrath of financial markets, ignite economic fire, and come to rue the day they undermined an important regulatory institution", he said.

A statement from the government clarifying on the issue clearly acknowledges the need for RBI autonomy within the framework of RBI Act, by calling it is essential and accepted in an economy.

RBI Governor Urjit Patel may not resign as he has called a board meeting on November 19 to discuss the pending issues, which created a rift between the government and the central bank, in the previous meeting held last week.

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"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", Section 7 of the RBI Act reads.

Jaitley had on Tuesday blamed the RBI for failing to stop a lending spree between 2008-2014 that left banks with huge bad debts, inflaming a row that recently erupted between the government and the central bank. This is equally true of all other regulators.

This section, never invoked by any government so far despite phases of tension with the central bank, allows it to instruct the RBI to take specific action.

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From the tone of Acharya's speech, it appeared that the RBI is under tremendous pressure to hand over its surpluses squirrelled away over years and hence its decision to take the issue to the people.

On October 27, Finance Minister Arun Jaitley said, "I think, for any regulatory mechanism, stakeholder consultation has to be of a very high quality, which will probably lead to a revisiting of traditional thoughts and opinions".

According to reports, sources said that Letters of Consultation under Section 7 of the RBI Act were invoked 3 times. The government, through these consultations, places its assessment on issues and suggests possible solutions. While there are reports suggesting that the Centre has already invoked Section 7 of RBI Act, it still remains unclear on how it will be used. "But it is quite worrisome to see the government trying to continuously interfere into the RBI's operations".

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The letter said, "Even 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 hard for RBI to frame policies".

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