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RBI vs government: Here is what experts have to say

Updated : October 31, 2018 19:04:58 IST

Amid reports of its mounting tension with the Reserve Bank of India (RBI), the union finance ministry on Wednesday said the government has "nurtured and respected" autonomy of the central bank and has been holding extensive consultations with it on many issues.

"The autonomy for the central bank, within the framework of the RBI Act, is an essential and accepted governance requirement. Government of India has nurtured and respected this," it said in a statement.

The government has also for the first time ever used a provision of law to ask the RBI for resolution of differences between them on stressed loans in power sector and other issues, sources privy to the development said.

Without acknowledging the notices sent to RBI under Section 7 of the RBI Act, the finance ministry in a statement said autonomy was "essential" but its functioning must be guided by public interest and needs of the economy.

Amid a standoff between the ministry and RBI over the central bank'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 RBI governor Urjit Patel was considering stepping down if the government were to issue an unprecedented direction.

CNBC-TV18 spoke with Bimal Jalan, former RBI governor; Arvind Virmani, chairman, EGROW; Ananth Narayan, professor, SPJIMR; SS Mundra, former deputy governor, RBI and Yashwant Sinha, former union finance minister, on this issue.

Jalan said the government seeking to de-escalate its stand-off with the RBI is a very positive and very welcome move, "What was going on for the last two three days was a matter of concern and that I hope now will start on a new path as it were."

The two institutions talking together is a very welcome step, he added, "The RBI has capital and high reserves. So it can transfer to the government as it wishes in consultation with the government."

Narayan said, "Today’s communication was clearly welcome. The fact that we haven’t yet crossed the brink, we are still at a negotiating table in some sense is extremely welcome news and the markets obviously also welcomed it.”

"Reserves is an involved topic. Irrespective of how strongly you feel about your point of view, you have to understand that dipping into reserves is something which will raise eyebrows. It means it has to be kept above aboard. You have to have a public dialogue, allow academics, allow other practitioners, allow investors in the world to weigh in and offer suggestions on what really is the right way forward," he added.

According to Narayan, such an involved issue cannot be decided in a precipitate manner without debate.
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