The Bharatiya Janata Party on Thursday said that the independence of the Reserve Bank of India cannot be ground for supremacy, reported The Indian Express.
The statement comes amid a widening rift between the Centre and the RBI. The government is reportedly upset with RBI Deputy Governor Viral Acharya’s statement last week that undermining a central bank’s independence was “potentially catastrophic”. On Wednesday however, the Finance Ministry issued a statement in support of the central bank’s autonomy.
“Independence of the RBI cannot be a ground for supremacy or any institution for that matter,” said BJP’s economic cell chief Gopal Krishna Agarwal. “There are different mandates in the institutions. They have different areas to deal with. Ultimately the political parties have a larger perspective with regard to accountability, with regard to economic growth of the country.”
Agarwal said all institutions will have to work together to achieve the goal of economic growth. “That’s the relationship between various departments and institutions,” he said, adding that the BJP respects the independence and autonomy of the institutions.
“Accountability of the elected government is supreme,” he said. “All the institutions should integrate the objective of the overall governance.”
Agarwal told The Hindu that the discussion on independence and autonomy of institutions, like the RBI, cannot be grounds for supremacy. “Institutions here seem to want supremacy rather than autonomy.” he said.
“Government respects autonomy but ultimately the mandate of the two [government and RBI] is different,” he said. “The RBI looks at monetary policy, while the government has to give direction to the economy at large, including infrastructure, social sector, and larger economic policy. The RBI has to integrate monetary policy with the larger aims for the economy.”
The BJP spokesperson’s comments came a day after the Rashtriya Swayamsevak Sangh’s economic wing said RBI Governor Urjit Patel should work in sync with the Centre or resign. The head of Swadeshi Jagran Manch, Ashwani Mahajan, said that Patel should restrain his officials from making the differences between the government and the central bank public.
On October 26, Acharya had said that governments that do not respect a central bank’s independence sooner or later incur the wrath of financial markets during a speech. 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. The government is also reportedly unhappy with the bank for not cutting interest rates and raising them instead.
Reports also claimed that the government had initiated talks with the central bank to invoke Section 7 of the Reserve Bank of India Act, which could empower it to issue directions to the central bank on certain matters. This was seen as an escalation of the tussle between the government and the RBI.