Govt says RBI autonomy essential

The government Wednesday said the RBI's autonomy is "essential" and will be "nurtured", as it sought to calm investors worried by the central bank reportedly being forced to resolve differences with the Centre which has cited powers never used before.

Finance Minister Arun Jaitley refused to be drawn into the row saying discussions and consultations with the RBI have never been disclosed publicly.

The row was sparked off on Friday when RBI Deputy Governor Viral Acharya in a hard-hitting speech warned that undermining central bank's independence could be "potentially catastrophic", possible indication of the RBI being pushed to relax its policies ahead of general elections next year.

Sources privy to development said the government has sent at least three letters on different issues under Section 7 of the RBI Act that gives it powers to issue any direction to the central bank governor on matters of public interest.

The standoff was in relation to RBI's handling of weak public sector banks, tight liquidity in the market and ways of resolving bad loans in the power sector. Unconfirmed reports claimed Governor Urjit Patel was considering stepping down if the government were to issue an unprecedented direction.

Without acknowledging that the notices have been sent to the RBI, the Finance Ministry in a statement said that the "autonomy for the central bank, within the framework of the RBI Act, is an essential and accepted governance requirement.

Governments in India have nurtured and respected this".

Later, when asked to comment on the issue at a press conference called to highlight India's jump on ease of doing business ranking, Jaitley said he did not have anything more to say beyond his ministry's statement.

"That statement also says that the communication between the government and the RBI and layers of consultations (happening) at what level, how it happened and the nature have never in the history been disclosed publicy," he said.

Only a final decision arrived is communicated, he added.

A senior Finance Ministry official said that the RBI has not been able to contain liquidity crisis and push credit growth.

The central bank has not taken adequate steps to address liquidity crunch, which has impacted auto and real estate sectors, he said.

Sources said the government has not taken any action of issuing any specific direction and has only initiated consultations with the central bank on unresolved issues.

Without making any reference to the letters, the ministry statement said, "both the government and the central bank, in their functioning, have to be guided by public interest and the requirements of the Indian economy."