The rift between the government and the RBI is not new. It has happened before and will happen again. It’s a process. But the difference of opinion has turned in rift and it has widened over several past months as both increasingly differed on key issues.
First it was demonetization which is largely forgotten now. Second is RBI’s circular on classification of non-performing assets (NPAs) and norms of loan restructuring. In a single stroke the RBI drove all but two state-run lenders into the red. It was indeed a harsh treatment. The government is also unhappy with the inflation-focused RBI for not cutting interest rates. The RBI has also been ignoring the government’s proposal to ease out the problems faced by NBFCs. The government has been insisting that RBI step in to provide relief to NBFCs, which are grappling with a cash crunch after IL&FS defaulted on repayments.
The government hit out at the RBI for its lack of proper supervision when the Nirav Modi scam broke. Immediately the governor voiced his opinion seeking more powers to oversee public sector banks so that they are at par with their private sector peers.
Now a speech made last week by Viral Acharya, the deputy governor, has brought the tensions between the RBI and the government to the forefront. Stressing the importance of the central bank’s autonomy, Acharya sounded a warning to the government — keep your hands off the RBI.
It was not necessary. With the words he used he has given enough proof that the RBI is very much an autonomous body. If the government was really serious he would have not dared to quote the former chief of Central Bank of Argentina Martin Redrado, which in India’s context (which was his intension) was in very poor taste. Comparing India with Argentina clearly shows that the deputy governor had malafide intensions. And if it was on the behest of Governor Urjit Patel, then the government must act tough because there are forums to put dissent note before the government.