Prime Minister Narendra Modi and Reserve Bank Governor Urjit Patel have met for the first time amid an unprecedented public face-off over a range of issues, including autonomy. The meeting took place on Friday, news agency PTI reported. With the matter making headlines for more than a week, there have been hopes that the differences between the two sides have been resolved. Next week, the Bank’s board is expected to meet for what Congress leader P Chidambaram has called “a day of reckoning“.
“The Prime Minister wanted to have a first-hand account and explain to him his government’s perspective and that his government is answerable to the people,” the sources told NDTV.
The Congress has alleged that the government, facing huge fiscal deficit in an election year, had demanded Rs 1 lakh crore from the reserves of the Reserve Bank of India.
When the Governor refused, the government took the “extraordinary, unprecedented step of invoking Section 7 of the RBI Act,” said former finance minister P Chidambaram. The November 19 meeting might be aimed at forcing the Governor’s hand through the RBI board, which is packed with the government’s men, he said.
If that happens, the Governor may give in or resign, Mr Chidambaram said, warning that both options will have “catastrophic consequences”.
Section 7 gives the government the power to consult and give instructions to the central bank chief in public interest.
The finance ministry initiated discussions on it as the differences between the central bank and the government became public last month after RBI Deputy Governor Viral Acharya made a case for autonomy, with the support of his boss, Mr Patel.
One of the key reasons of the friction is the government’s demand that the central bank ease lending restrictions on banks that have piled up bad debts. The RBI has barred 11 state-run banks from lending.
There are differences also over interest rates. While the RBI believes it should have sole responsibility of raising or lowering key interest rates to keep inflation in check, the government has expressed displeasure over the RBI increasing interest rates when it wants them lowered to boost spending.