The government on Wednesday said the autonomy of the Reserve Bank of India is “essential”. The Finance Ministry, in a statement, acknowledged that it holds consultations with the central bank on several matters. However, it only makes public the final decisions made after such consultations, and not the subject matter of those talks, said the Ministry of Finance.

The statement came hours after reports said that the Centre had initiated talks with the RBI to consider invoking a provision never used before, which could empower it to issue directions to the central bank on certain matters. The statement made no mention of these reports or the provision it has reportedly invoked.

“The autonomy for the central bank within framework of RBI Act is an essential and accepted governance requirement,” said the ministry in the statement. “Both the government and the central bank have to be guided by public interest and requirements of the Indian economy. For the purpose, extensive consultations on several issues take place between the government and the RBI from time to time. This is equally true of all other regulators.”

The statement went on to say: “The government has never made public the subject matter of those consultations. Only final decisions are communicated. The government, through these consultations, places its assessment on issues and suggests possible solutions. The government will continue to do so.”

The reports on Wednesday morning referred to Section 7 of the Reserve Bank of India Act. An Economic Times report suggested that the provision may already have been invoked, while some news channels claimed that RBI Governor Urjit Patel may consider resigning. Subhash Chandra Garg, the economic affairs secretary in the ministry, had earlier refused to comment on the reports.

Section 7 of the RBI Act empowers the government to consult and instruct the central bank governor on matters it considers to be of public interest.

The Economic Times claimed that letters sent to the RBI in recent weeks exercising powers under the provision could be the reason for a rift between the central bank and the government that has become increasingly public in recent days. Reserve Bank Deputy Governor Viral Acharya had on Friday warned that undermining a central bank’s independence was “potentially catastrophic”.

Former Finance Minister P Chidambaram wrote on Twitter that if the reports were true, “I am afraid there will be more bad news today”. “We did not invoke Section 7 in [the crises of] 1991 or 1997 or 2008 or 2013,” he wrote. “What is the need to invoke the provision now? It shows that government is hiding facts about the economy and is desperate.”

The rift

In his speech on Friday, Acharya said that governments that do not respect a central bank’s independence sooner or later incur the wrath of financial markets. Government officials had recently called for the RBI to relax lending restrictions on some banks. The RBI also opposed a suggestion by the government’s inter-ministerial committee to set up an independent regulator for payment systems.

Three days after the speech, Reuters reported that the Centre is upset with the central bank for publicly talking about the rift. Senior officials said the government fears the rift could tarnish the country’s image among investors. An unidentified official in the Prime Minister’s Office told Reuters it was “very unfortunate” that RBI took the matters public. The official said Patel may face a tough time when he appears before a parliamentary standing committee on November 12.

On Tuesday, Finance Minister Arun Jaitley said the central bank had “looked the other way” when banks were lending “indiscriminately” between 2008 and 2014.

Another government official told Reuters that it was vital that what happened between the government and RBI was kept confidential. “The government respects the autonomy and independence of the RBI but they must understand their responsibility,” the official added.

Government officials said they were surprised that Patel, who was appointed by the Modi administration in 2016 and initially cooperated with the government, is creating tension when the Centre is facing criticism over its handling of the economy before the 2019 General Elections.

The government is also reportedly unhappy with the bank for not cutting interest rates and raising them instead.