Amid the ongoing tussle with the Reserve Bank of India, the Finance Ministry released a statement on Wednesday saying autonomy for the central bank is an accepted governance requirement.
"Autonomy for the Central Bank, within the framework of the RBI Act, is an essential and accepted governance requirement. Governments in India have nurtured and respected this," Press Information Bureau issued a statement.
The statement was issued by Finance Ministry amid rumours that the government invoked Section 7 of the RBI Act which lets the Centre control the consultations of the RBI in the interest of the public.
However, the statement does not mention if the government had invoked Section 7 of the RBI Act.
Speculations are rife that RBI governor Urjit Patel might also resign due to the invoking of Section 7.
According to the PIB, the statement read:
"The autonomy for the Central Bank, within the framework of the RBI Act, is an essential and accepted governance requirement. Governments in India have nurtured and respected this. Both the Government and the Central Bank, in their functioning, have to be guided by public interest and the 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. Government of India has never made public the subject matter of those consultations. Only the final decisions taken are communicated. The Government, through these consultations, places its assessment on issues and suggests possible solutions. The Government will continue to do so."
Section 7 that gives the government complete authority over RBI has never been invoked in the history of the country. The act will let the government guide the central banks regarding matters they deem concerns public interest after consulting with the governor of the bank.
According to a report by the Economic Times, the rift between the government and the central bank widened during a speech by the deputy governor Viral Acharya last week when he spoke of the importance of the RBI's autonomy. This, along with the IL&FS default in September, caused further problems between the two entities.