A day after employees of the Reserve Bank of India (RBI) said that the government was impinging on the central bank’s autonomy, the finance ministry in a statement on Saturday said the government fully respects the independence and autonomy of the RBI.
“There has been a report in sections of the press that some unions have alleged infringement of the autonomy of the RBI. It is categorically stated that the government fully respects the independence and autonomy of the RBI,” the ministry said.
“Consultations between the government and the RBI are undertaken on various matters of public importance wherever such consultation is mandated by law or has evolved as a practice. Consultations mandated by law or as evolved by practice should not be taken as infringement of autonomy of the RBI,” it added.
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The government’s statement comes after the RBI employees on Friday took strong exception to the recent measures involving the demonetisation of Rs 500 and Rs 1,000 notes, stating that the government “is impinging on the RBI’s autonomy and its statutory as well as operational jurisdiction”.
In a letter to RBI Governor Urjit Patel, the United Forum of Reserve Bank Officers and Employees, said: “We request the governor of the RBI, its highest functionary and protector of its autonomy and prestige, to do the needful urgently to do away with this unwarranted interference from the finance ministry and assure the staff accordingly as the staff feels humiliated.”
The Forum’s letter follows reports that the ministry had sent a joint secretary to coordinate RBI’s cash operations. “If true, this is most unfortunate and we take strong exception to this measure,” the Forum said. The Forum represents three RBI unions coordinating the officers and other employees.
“It’s painful to note that the RBI is being criticised by many quarters, for its ‘operational mismanagement’ by the press and many important personalities. Its autonomy and image have been dented beyond repair. Such critics include even former RBI governors,” the Forum said in the letter.
Last week, former RBI governor Y V Reddy said that the role of the central bank is under threat, while another former governor Bimal Jalan said the RBI’s autonomy is fundamental and needs to be maintained. “…the autonomy of the RBI — that is a very fundamental fact and we have to maintain it and I hope the government would give attention to that part also,” Jalan had said in an interview to CNBC TV18.
Jalan said one would have to wait and see how the relationship between the government and RBI develops which ultimately is a matter of coordination.
Jalan made his remarks a day after Reddy said in a TV interview that the role of the RBI in the economy is under threat and institutional identity of the central bank has been damaged due to demonetisation.
“I would even go to the extent of saying that particularly recent events, I have seen the comments from economists from Standard and Poor’s, and they are disturbing. For the RBI, for a central bank, reputational risk is the worst risk. Credibility is the worst risk. And, if this is happening in the international opinion, I would say that it is a national problem now and it is not just a political issue,” Reddy said. Jalan was the RBI governor from 1997 to 2003 and was succeeded by Reddy.
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