RBI vs Government : Insight

RBI vs Government : Insight

November 3, 2018 0 By Beyond Posts

In the last four years under NDA regime, it is the second time India’s Central Bank- Reserve Bank of India (RBI) and the government are confronting. Former Governor Raghuram Rajan, unceremoniously, exited from RBI due to allegedly too much interference from the government. The feud between RBI Governor Urjit Patel and Finance Minister Arun Jaitley repeated the same story. The worst part is now they took the infight in public. The government is saying that it will keep instructing RBI in the favor of public interest while RBI thinks it is an attack on autonomy of the Central Bank.

For more clarity on the vague subject Beyond Post talked to noted Economist Santosh Mehrotra.

Santosh Mehrotra said, “It is a good thing that issue is being discussed in public in a democracy and not just this government but the previous government too interfered for the public interest. In the International World, Central Bank of a country is usually called independent and we have been trying to maintain the same in our country for several years. No doubt, RBI has the ability to manage independently, and can supervise public sector banks too.”

However he cautioned that the matter should be settled with consultation among all stakeholders. “Recent many issues, including Bad loans made rift between the two which must be resolved,” Mehrotra added.

RBI doesn’t always receive interference from the government; however, section 7 of RBI Act gives rights to the central government to do so. According to Section 7 of RBI Act, it empowers the Central government to issue directions to the Central Bank after consultation with RBI governor. We have seen a glimpse of this at the time of demonetization as well when RBI had to accept the decision but now the it is provoked publicly as Finance Minister Arun Jaitley blamed RBI for bad debts and twin balance-sheet issue. RBI is blamed to fail in checking indiscriminate debts between 2008 to 2014.