RBI battling to save its independence

After Central Bureau of Investigation (CBI), now Reserve Bank of India (RBI) is at logger heads with central government. The bitter turf in CBI between its former director Alok Verma and former special director Rakesh Athana resulted in unprecedented scenario which forced government to intervene and send both officials to leave. Mr Verma has contested the move of government in Supreme Court. While the CBI battle is still playing out in SC, now RBI has drawn battle line against central government alleging interference in their functioning. Tensions between the RBI and the union government have become increasingly public after the bank’s Deputy Governor Viral Acharya said last Friday night that undermining central bank independence could be “potentially catastrophic”.
The comments indicated that the RBI was pushing back against government pressure to relax its policies and reduce its powers ahead of a general election due by May next year. Earlier in the day, some TV channels reported that Mr Patel could consider resigning from his post given a breakdown in relations with the government, sparking a sell-off in the rupee and bonds. This growing tension between RBI and government has potential to create economic havoc in the country. For long RBI has earned respect of economists and investors from across world for its independence. The Narendra Modi government is trying to interfere in the functioning of RBI which may cause damage to the credibility of central bank. Governor Urjit Patel came in for a great deal of criticism for listlessly signing off on demonetisation. But it is clear that he, even if he was a Modi appointee, is ready to resist attempts by the Modi government to reduce the RBI’s independence. This is another instance of an institution battling to save its sovereignty.