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The government sought to define the nature of its relationship with the Reserve Bank of India — currently at a low ebb — by declaring that it respected the regulator’s autonomy but that this independence was subject to provisions of the RBI Act. This meant that it will continue to raise issues of public interest and the economy with the central bank, the government insisted.  The statement came on the day ET reported that the government had invoked powers never used before under the RBI Act to issue directions to the central bank. The press release helped calm the market but didn’t appear to suggest a de-escalation in hostilities between the government and the central bank. “The autonomy for the central bank, within the framework of the RBI Act, is an essential and accepted governance requirement,” the government said, amid speculation about governor Urjit Patel resigning. “Governments in India have nurtured and respected this.”  The government and RBI have to be guided by...

Section 7 (1) of the Reserve Bank of India Act became a contentious issue after the tension between the central bank and government turned into a public spat over the last few days. No government has so far invoked this section in the central bank’s 83-year history.  According to Section 7 (1), “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.” The issue of invoking Section 7 (1) came up during the hearing of Allahabad high court in a case filed by the Independent Power Producers Association of India challenging RBI’s 12 February circular. The high court, in August, said the government could issue directions to RBI under Section 7 of RBI Act.  Against this backdrop, the government issued a letter to the RBI governor seeking his views on exemption for power companies in relation to the 12 February circular. The second instance was when the gov...

The Reserve Bank of India governor should work in sync with the nation's government to support economic growth or he should resign, said the head of the economic wing of Hindu nationalist group Rashtriya Swayamsevak Sangh, which is the fountainhead of Prime Minister Narendra Modi's ruling party.  RBI Governor Urjit Patel should also "restrain his officials from making differences public," said the RSS official, Ashwani Mahajan, in an interview on Wednesday. "If he doesn't follow discipline it would be better for him to resign," he added. Modi's Bharatiya Janata Party (BJP) emerged from the RSS and its members work to get BJP candidates elected. Mahajan is chief of the RSS's Swadeshi Jagran Manch (SJM) economic group.  Earlier in the day, some local TV channels reported that Patel could consider resigning from his post given a breakdown in relations with the government, sparking a sell-off in the rupee and bonds.  Tensions between the RBI and ...

After a high-pitched spat over last week, the Reserve Bank of India (RBI) and the government on Wednesday seemed to agree to continue discussions to resolve their recent disagreements — in “public interest”.  Speculation was rife on RBI Governor Urjit Patel’s imminent resignation on Wednesday morning. But by afternoon, he had called a board meeting on November 19 to continue discussions. The finance ministry also issued a statement, saying the central bank and the government “have to be guided by public interest and the requirements of the Indian economy”. “The autonomy for the central bank, within the framework of the RBI Act, is an essential and accepted governance requirement. Governments in India have nurtured and respected this,” the finance ministry’s statement said.  The government and the central bank had disagreed on several issues such as dividend transfer, capital adequacy norms, and liquidity needs of non-banking financial companies (NBFCs).  The RBI for n...