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"Stand Up To PM, Protect Nation": Rahul Gandhi's Message To Urjit Patel

07 November 2018

Rajan's comments on the institutional autonomy of the RBI came just days after the Centre's Narendra Modi government was accused of trampling upon the freedom of the country's federal bank, Rajan said.

However, The Indian Express, while citing sources said that the RBI has rejected the proposal stating that such a move could have an adverse effect on the macroeconomic stability and with low capital, RBI could end up losing its credibility. They have been hurt in recent weeks because of defaults by a major financing company. The RBI did not immediately respond to a request for comment.

One of the nominee director on RBI's Central Board S Gurumurthy has reportedly written to RBI Governor Urjit Patel regarding Deputy Governor Viral Acharya raising the issue of the bank's autonomy at a public event recently.

"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; their wiser counterparts who invest in central bank independence will enjoy lower costs of borrowing, the love of global investors, and longer life spans", Acharya had said.

For its part, government officials say they have been increasingly frustrated by the intransigence of Patel and his team to address its demands and engage in constructive dialogue.

The ruling Hindu nationalist Bharatiya Janata Party is also keen to reduce curbs on the shadow banking sector and increase overall lending to small and medium-sized businesses.

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"We will do everything to protect the interests of the economy", one of the members of the RBI central board told Reuters, noting the governor and his team would have to "explain, defend and justify" their decisions at the board meeting.

Acharya, in his much talked about speech last month, raised the issue of autonomy of the central bank and said that undermining the central bank's independence could be "potentially catastrophic".

He said, "The role of the central bank is to be the wise counsel, like Dravid, not to make operational decisions and certainly not be loud like Navjot Sidhu". He also said that RBI giving "extraordinary dividend" to the government would lead to an "inflationary situation".

Apart from Patel and his four deputies, there are 13 nominated directors on the RBI's board. The section deals with power that the government directs to the central bank regarding policies.

"The RBI is something like a seat belt, the driver being the government. there could be a possibility of not putting on a seat belt".