Reports of RBI Governor Urjit Patel's possible resignation rock Indian government

Reports of RBI Governor Urjit Patel's possible resignation rock Indian government

The Finance Ministry on Wednesday issued a statement that said the central bank's autonomy is "an essential and accepted governance requirement".

Voicing support for Patel, Bharatiya Janata Party (BJP) leader and Rajya Sabha MP Subramanian Swamy on Wednesday said if the governor decides to leave, the blame would fall on Jaitley. The association said Acharya's comments about government's interventionist role vis-àvis the RBI have created a flutter across the nation. These powers allow the government to issue directions to the central bank governor. When such a measured perspective of an independent central bank as a key element of durable economic prosperity is missing and/or government myopia so rife as to lead to regular inroads into central banking apparatus and decisions, unfortunate accidents can arise. "The central bank looked the other way, there was indiscriminate lending", he said. 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; their wiser counterparts who invest in central bank independence will enjoy lower costs of borrowing, the love of worldwide investors, and longer life spans. In lending cases, government stand is contradictory. When the central bank refused to budge, it used powers available to it under Section 7 of the RBI Act to direct it. But the specific warning within it goes beyond any current conditions and applies to any discussion about power struggles between governments and their central banks.

The economist said that there are genuine problems of liquidity in the system and the RBI is expected to act to address them.

According to the RBI, if repayment is delayed by even one day, the account should be seen as stressed and the banks would be required to initiate resolution. These letters were on the government's desire for power sector non-performing assets to be reclassified, the issue of the RBI giving dividends to the Centre, and the government's desire for the Prompt Corrective Action norms applicable for certain bank be eased so as to increase lending for the MSME sector, respectively.


As mentioned in the report, Acharya's speech was only a strike in the long-running tug of war between the government and the RBI on whether the bank should part with some of its Rs 3.6 lakh crore reserves to fund the country's fiscal deficit.

"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.

"While objectives of both the government and the RBI appear to be the same as far as the question of tackling NPA is concerned, there seems to be a large difference in their approaches, which is apparently creating a tussle between the two institutions", N.R. Bhanumurthy, professor at National Institute of Public Finance and Policy (NIPFP), told The Wire.

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