NEW DELHI: Amid mounting tension between the finance ministry and RBI, the Arun Jaitley-led ministry on Wednesday sought to calm nerves by issuing a statement that it would not undermine the central bank’s autonomy.
The public display of acrimony stems from a lack of communication between RBI top brass and finance ministry officials, sources said. Things would not have come to such a pass if either side cared to lift the phone and talked out their differences.
The finance ministry had to contain the fire after the letters written by Economic Affairs Secretary Subhash Chandra Garg to RBI threatening to invoke Section 7 of the RBI Act went public. The legal provision, which has never been used, allows the government to issue directives to the central bank in public interest.
Talks of Section 7 triggered speculations that RBI governor Urjit Patel might resign. Equity markets fell, the rupee breached Rs 74 to a dollar, and the Opposition picked up the issue. A rattled finance ministry soon issued a statement saying the government has “nurtured and respected” RBI’s autonomy.
Sources say Garg’s letters, written in recent weeks on issues ranging from liquidity for NBFC’s, loans to SMEs and capitalisation of banks, were the reason behind the critical speech by RBI deputy governor Viral Acharya accusing the government of undermining the banking regulator’s autonomy.
Finance ministry officials say the only aim of the letters was to nudge RBI to open its eyes to the liquidity problem.
‘Aimed to ease liquidity crisis’
FinMin sources say Garg’s letter was a desperate attempt to force RBI to relax its rigid stand on the liquidity crisis, which is threatening to derail the economy.