The Reserve Bank of India governor Urjit Patel is considering all options including resigning from his post following an unprecedented attack on the central bank's functioning by Finance Minister Arun Jaitley. "We firmly hold that undermining the central bank is a recipe for disaster and the government must desist", the All India Reserve Bank Employees Association said in a letter.
Reports suggest that the Centre has sent letters to the RBI invoking Section 7 of the RBI Act on Wednesday, 31 October, allowing it to issue directions to the central bank governor on matters of public interest. The Economic Affairs Secretary on Wednesday, however, refused to comment anything with respect to it.
The government added that it would continue to carry out extensive consultations with the central bank to give its assessments on issues and suggest possible solutions. I don't know what the central bank was doing.
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The government stressed on Wednesday that the autonomy of the Reserve Bank of India (RBI) is "essential" as it sought to calm investors anxious about a growing public quarrel with the central bank. Three issues were raised through these consultations - Issues of the power sector, Prompt Corrective Action (PCA) and Medium and Small Scale Enterprises (MSME). That has led to a liquidity crunch in the entire non-banking finance sector.
In a statement issued hours later through the finance ministry, the government said the RBI's independence was "an essential and accepted governance requirement". According to reports, the Modi government had invoked Section 7 first time soon after Allahabad court's verdict in RBI versus Power companies.
The statement comes amid reports of the government having issued directions to the RBI on issues such as easing lending norms to infuse liquidity in the system.
The ministry also said in the statement that the government has never made public the subject matter of those consultations and only the final decisions taken are communicated. What is the need to invoke the provision now? "It shows that the government is hiding facts about the economy and is desperate", he said in a tweet. "We appeal to all right-minded people and experts to speak out and persuade the government to amend, and let RBI do its jobs in an unfettered was as per statutes, mandates, practices".