Former Union minister P Chidambaram today said the spat between the government and the Reserve Bank is over a huge sum of money the government has demanded from the Central Bank. The imposition of a never-before used rule was meant to force the hand the Governor, who has refused to pay. The day of reckoning is November 19, when a board meeting is scheduled. “Hope the Governor stands his ground,” Mr Chidambaram said.
Putting pressure on the Reserve Bank of India and forcing Governor Urjit Patel to step down will have “catastrophic consequences”, Mr Chidambaram said.
A finance minister in the government of Manmohan Singh, Mr Chidambaram accused the government of demanding Rs 1 lakh crore from the reserves of the Reserve Bank of India. The government, he said, is trying to step up expenditure in an election year despite facing a fiscal deficit.
When the Governor refused the government took the extraordinary, unprecedented step of invoking Section 7 of the RBI Act, which gives the government the power to give instructions to the central bank in the public interest, after consulting the governor.
If the Governor stands firm, the government is planning to issue an order to the Governor under the Section 7 to release the money.
“The Governor has only two options — transfer the money or resign. “When governor refused to oblige, the government took the unprecedented step of imposing Section 7 of the RBI Act,” the former finance minister said.
Accusing the government of packing the board of RBI with its men, Mr Chidambaram said: “”This government does not know what catastrophic consequences there will be if the RBI transfers the money, or the governor resigns. I’m getting information that the government is getting its nominees to force the RBI’s hand.”