To take advantage of India's growing clout in the global space, the government and the central bank should address the root causes of recent "standoff" between them, former RBI Governor Y V Reddy said Friday.
Tensions between the government and the Reserve Bank of India (RBI) in the very recent past have been aired in public culminating in the resignation of Governor Urjit Patel, he said at Kale Memorial lecture here.
The stand-off between the government and the RBI was witnessed on various issues including sharing of the central bank's surplus, PCA framework and MSME lending.
In October 2018, Reddy said, it was transpired that the government had sought the opinions of the RBI Governor under Section 7 of the RBI Act in order to give directions to the apex bank in public interest.
"This is unprecedented and virtually meant that the channels of normal communication for reaching agreed position between Government and Governor RBI had broken down.
Reddy further said that India has to very closely watch the global developments and chart the future of its central banking, more than ever before in history for several reasons.
Also, the country has more opportunities than ever before in the area of financial sector for our dominance with our strengths in technology and skilled manpower.
"To take advantage of it, Government of India in partnership with Reserve Bank of India should address the root causes of the recent standoff between them," said Reddy, a bureaucrat who became the RBI Governor in September 2003. He held the RBI office for five years.
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