The finance ministry said consultations with RBI took place from time to time “in public interest”.
The government today confirmed “extensive consultations with RBI” as it responded to reports that it had invoked never-before-used powers to issue directions to the central bank governor on matters of public interest.
In a statement, the finance ministry said such consultations with RBI or Reserve Bank of India took place from time to time “in public interest”.
“The government has never made public the subject matter of those consultations. Only the final decisions taken are communicated,” said the ministry.
It asserted that both the government and the central bank “have to be guided by public interest and the requirements of the Indian economy.”
Reports this morning quoted sources as saying that the government had sent letters to the RBI governor in recent weeks exercising powers under section 7 of the RBI Act on issues ranging from liquidity for non-bank finance companies, capital requirements for weak banks and lending to small- and medium-sized companies.
Section 7 says that ‘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’, a statute that has not been used in independent India.
“The government, through these consultations, places its assessment on issues and suggests possible solutions. The government will continue to do so,” said the statement put out amid growing differences between the finance ministry and the RBI.
TV channels reported that RBI Governor Urjit Patel may consider resigning from his post given a breakdown in relations with the government.
The government began its clarification by saying that autonomy for the central bank, “within the framework of the RBI Act, is an essential and accepted governance requirement.”