Analysts have slammed economic affairs secretary Subhash Garg for a provocative tweet days after the RBI and the Centre sparred in the open.
New Delhi: Just as the standoff between the Reserve Bank of India (RBI) and the Modi government appeared to be thawing, Economic Affairs Secretary Subhash Garg seemed to stoke the embers with a controversial tweet Friday.
“Rupee trading at less than 73 to a dollar, Brent Crude below $73 a barrel, markets up by over 4% during the week and bond yields below 7.8%. Wrath of the markets?” Garg tweeted.
The row between India’s central bank and the government, with the former accusing the Centre of interference and the latter lashing out at the RBI’s failure to check bad loans, had caused much concern among economists.
Following rumours that RBI governor Urjit Patel was set to resign amid reports that the government would invoke the never-used-before Section 7 of the RBI Act to wrest temporary control of the bank, the rupee as well as the stock markets took a hit.
It was a matter of grave concern as the rupee, hit hard by steep crude prices, has been one of Asia’s worst performing currencies this year.
It’s in this backdrop that Garg posted the tweet, leading analysts to say that policymakers needed to exercise restraint in their “communication style” to ensure stability and unity among the government and various other critical institutions like the RBI.
It was untimely and needless, especially as the rupee and the stock markets encountered turmoil through the week over the tensions between the RBI and the government, they added.
Also read: RBI is pushing Modi govt back as the era of easy money is over
“There was no need for such a tweet. It seems the government is immune to any shock,” said an independent banking analyst. “The stocks and the rupee both had a fall with talks of RBI governor resigning and the Centre… undermining the RBI’s autonomy,” the analyst added.
“The government had to issue a statement to soothe the nerves of investors… why rake up issues that are best buried?”
Discord between the RBI and the government can have serious ramifications in the foreign exchange and stock markets. The trade tensions between two of the world’s biggest economies, the US and China, and the ensuing fears of a possible global trade war, don’t help matters.
‘Signal needed’
“Both the government and the RBI must give a signal to assure investors of stability…,” said another analyst. “At this point, with mounting tensions between the central bank and the Centre, restraint is necessary.”
Delivering a speech last week, RBI deputy governor Viral Acharya lashed out at the government, saying curbs on RBI’s autonomy could have serious ramifications.
Also read: Section 7 of RBI Act — Modi govt’s ‘secret weapon’ against the central bank
“Governments that do not respect central bank independence will sooner or later incur the wrath of financial markets, ignite economic fire, and come to rue the day they undermined an important regulatory institution,” he said.
Finance minister Arun Jaitley hit back, saying the RBI’s inability to spot bad loans was the reason behind the current banking crisis.
We miss Dr Montek Singh Ahluwalia, Dr Vijay Kelkar, many others who brought lustre and luminosity to their jobs.