The ongoing rift between the government and the Reserve Bank of India — India’s central bank — is all set to play out at an RBI board meeting that’s currently under way. It will be the first since the extent of the conflict became public knowledge.
Finance Ministry nominees and some independent directors are expected to take on RBI Governor Urjit Patel and his team over issues ranging from the bank’s reserves to micro, small and medium enterprises (MSME) credit — though both sides are in favour of reaching common ground. (For a more in-depth look at what’s at stake in today’s meeting, read this.)
A public spat: Last month, the government invoked a section of the RBI Act that empowers it to issue directions necessary for public interest to the RBI from time to time, after consultation with the bank’s governor. In a speech, RBI Deputy Governor Viral Acharya spoke about the independence of the central bank, arguing that any compromise could be “potentially catastrophic” for the economy. (Go deeper.)
Will Urjit Patel resign?: While there have been reports and demands from some quarters for the RBI governor to step down, sources said Patel is unlikely to yield under pressure and will rather mount a strong defence of the central bank’s policies regarding stringent non-performing asset (NPA) recognition norms as well as measures taken to ease credit supply to MSMEs, the Press Trust of India reported.
Who’s on the board?: The RBI board currently has 18 members (although it can have up to 21), including Urjit Patel and his four deputies. The 13 others were nominated by the government; they include two Finance Ministry officials — the Economic Affairs Secretary and the Financial Services Secretary.
A Reuters report says the board is now “stacked with government nominees who can be counted on to support the administration”, and is “being transformed from having a passive advisory role into a body that can exert pressure for policy change”.
The London-based newswire said it learned from two board members that “government pressure for easier lending policies is likely to become abundantly clear” at today’s board meeting.
News credit : Indiatoday