Neither the RBI nor the Finance Ministry is making an effort to maintain interaction between each other and as a result, the respect and trust between the two organisations have deteriorated, said former Economic Affairs and Financial Services Secretary R. Gopalan.
“There were tensions before, but not so much as it is now,” Mr. Gopalan said. “There are a number of issues today around which there have been tensions.
“From demonetisation onwards, the blame was put on the Governor, who said that it was handed down to him, and then there was the February 12 circular, and then the PNB crisis came, and then the RBI was forced to give an interim dividend for the first time. Then, the government asked that power sector NPAs should have a different system of recognition, and that the PCA rules should be relaxed.”
‘Shortcomings, ego’
“There are shortcomings on both sides and there is ego on both sides,” Mr. Gopalan added. “You have to interact and keep personal interactions up despite your issues.
“I find that this is not happening now. In the current case, both sides are not making an attempt to do that. Because of that, it is coming [out] in the public. The respect for each must come back, and the trust in each must come back.”
Tensions between the RBI and Finance Ministry are not new, but the fact that they are coming out in public now is worrying, according to former Governors of the central bank and economists alike.
“There have always been differences between the RBI and the Centre, but the fact that they have come out in the public saying they have different views is of some regret and concern,” a former Governor of the RBI said on condition of anonymity. “The RBI is a monetary policy institution and supposing it wants to raise interest rates and the government doesn’t agree, there can be differences, but the public announcement of these differences is very unusual.”
“It is very bad form that the issue is being made public,” former Chief Statistician of India Pronab Sen said.
“There are a number of issues where the RBI and the Finance Ministry can differ, but the Governor usually makes several trips to Delhi and these are worked out,” Mr. Sen added.
On speculation that the government was considering reviewing RBI Governor Urjit Patel’s tenure, an official in the Finance Ministry said: “All this talk about the government reviewing the RBI Governor’s term is just mischievous reporting. The Governor’s term is for three years, and that will come to an end in September next year. A review will be done at that time, there is no review happening right now.”