Modi govt underplays rift with RBI after Viral Acharya’s fiery speech

Viral V. Acharya, Professor of Finance at Stern School of Business, New York University | Horacio Villalobos/Corbis via Getty Images

Finance ministry officials say it’s a healthy sign that the government and RBI are not on the same page. 

New Delhi: The Modi government has sought to underplay its latest rift with the Reserve Bank of India (RBI), sparked by RBI deputy governor Viral V. Acharya’s references to government interference and a lack of autonomy at the central bank during a lecture Friday.     

Officials at the Finance Ministry Monday brushed aside any suggestions of a run-in stemming from Acharya’s remarks, underlining that consultations and discussions cannot be construed as interference.

“What is new? Isn’t it healthy that the government and the RBI are not on the same page,” a government official, who did not wish to be identified, told ThePrint.

“Till some time ago, there was this perception that the RBI was toeing the government line… Now, that the RBI has made a statement on its autonomy, there is a problem again.”

Another top finance ministry official said that the government and RBI hold regular discussions on several issues and that it was natural there would be “some disagreements.”

“It is not possible to agree on all matters. Disagreements are much needed for a democracy but to bring it out in the public domain is uncalled for as it gives a wrong signal,” the official said.

On Friday, speaking at a lecture in Mumbai, Acharya had said that only providing RBI autonomy and independence would usher in true inclusive reform.

“To secure greater financial and macroeconomic stability, these efforts need to be extended to effective independence for the Reserve Bank in its regulatory and supervisory powers over public sector banks, its balance-sheet strength, and its regulatory scope,” Acharya said. “Such endeavour would be true inclusive reform for the Indian economy’s future.”

Finance Minister Arun Jaitley, speaking at a function Saturday, promptly noted that regulations need to keep changing with time to adjust to the needs of the economy.

While such discord between the RBI and the government is not new, there are whispers that there is a widening rift under the current dispensation.

Discord between RBI, government

The apparent discord between the ministry and the RBI began earlier this year, when Jaitley, without naming the central bank, blamed “regulators” for not raising the alarm in the Rs 13,600-crore Punjab National Bank fraud involving diamantaire Nirav Modi.

In March, RBI governor Urjit Patel retaliated and pointed out the limitations that the central bank was constrained by.

Last year, Patel along with other members of the Monetary Policy Committee, firmly refused to meet ministry officials ahead of a review meeting in June. Besides, Patel has revealed that he does not support farm loan waivers.

Insiders also say that Acharya’s strong message could not have been possible without RBI governor Urjit Patel’s consent.

RBI vs finance ministers

RBI governors have been at loggerheads with finance ministers in previous governments too. It is no secret that former governor D. Subbarao was not on the same page with then finance minister P. Chidambaram.

“Growth is as much a challenge as inflation… If the government has to walk alone to face the challenge of growth, then we will walk alone,” Chidambaram had said in October 2012, in a veiled reference to the RBI.

Before demitting office, Subbarao, in his last public speech, said, “I do hope finance minister Chidambaram will one day say, ‘I am often frustrated by the Reserve Bank, so frustrated that I want to go for a walk, even if I have to walk alone. But thank God, the Reserve Bank exists.’”