Autonomy for the Reserve Bank of India, within the framework of the RBI Act, is an essential and accepted governance requirement, said the finance ministry in a statement on Wednesday as the rift between the two authorities widened.
The government confirmed that "extensive consultations" on many issues take place between the government and RBI frequently and added that it will continue to place assessments, suggest solutions post consultations with RBI.
"Governments in India have nurtured and respected this. Both the government and the central bank, in their functioning, have to be guided by public interest and the requirements of the Indian economy," the finance ministry stated.
"Government of India has never made public the subject matter of those consultations. Only the final decisions taken are communicated," it added.
However, the government, did not comment on invoking of Section 7 of the RBI Act. Government sources had earlier said that the section had never been formally invoked, but a conversation and consultation maybe on .
The Section 7 of the RBI Act says, “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”, meaning the government, in consultation with RBI governor, can give direct orders to the central bank to go ahead and carry out its wishes in public interest.
Sanjaya Baru, political commentator, said, "Whether it uses the word section 7 or not, the fact is that the government of India is a sovereign and the central bank has been created by the government of India ... they both have to play this game together and the RBI has to behave- as I think Venugopal Reddy famously said the RBI has autonomy as long as the government allows us to have the autonomy. That is a bottom line. So, this whole fuss that has been made about some directive being given partly shows the immaturity of the chaps in the minister of finance. I think on both sides we are now saddle with relatively inexperienced people which is a pity."
"I think this is very welcome news. Hopefully there is discussions happening in the background to resolve whatever issues are outstanding between the RBI and the ministry of finance ... the statement gives me hope that all is not lost, that we will actually settle down here and move on and act in a more professional fashion," Ananth Narayan, professor, SPJIMR said.