After a marathon meet, RBI and Govt find middle ground

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But, one important question remains: If the RBI was in agreement with the government on most of the contentious issues, why did it feel the need to go in for a public display of outrage and why did the government feel the necessity to flash the Section 7 card sparking unnecessary confusion in the financial markets?

Finance Minister Arun Jaitley on Saturday said growth must not be throttled by limiting credit availability and liquidity due to the cleaning up of the banking system that he blamed on the "collectively committed sins" during 2008-14 when the previous UPA was in power.

The Reserve Bank of India (RBI)'s board is meeting in Mumbai today in the middle of an unprecedented public feud between the government and the central bank, which alleges attempts by the centre to undermine its autonomy. To sum up, Monday's RBI board meeting can hardly be seen as a clash between the two sides but an event when the RBI got a reminder that the government is the ultimate authority and acted accordingly. The central bank and the government have been warring over these issues for almost a month.

However, if the board meeting turns turbulent and there is no accommodative approach, there is speculation that RBI governor Urjit Patel could resign.

"November 19 will be a day of reckoning for the central bank's independence and the Indian economy".

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"Both the RBI governor and the finance ministry walked the extra mile", Chaturvedi said.

"Glad that the Government has stepped back and grudgingly acknowledged the independence of the RBI", he said on Twitter. "The other so-called disagreements are only a smoke screen", added Mr Chidambaram. While the government thinks the RBI has "excess capital" in its reserves and wants the central bank to transfer more money to it as part of the surplus, the RBI contends that it needs to have a stronger balance sheet to deal with a possible crisis and external shocks.

"There is no proposal to ask RBI to transfer Rs 3.6 lakh crore or Rs 1 lakh crore, as speculated", Economic Affairs Secretary Subhash Chandra Garg had tweeted.

The Congress has accused the Modi government of destroying every institution in the country and the latest one being the Reserve Bank of India.

Former RBI governor Raghuram Rajan had recently said that board's role historically has not been to take "operational decisions" but to focus on broader strategy as well as ensure good governance. "The aim of the board is to be Rahul Dravid - sensible, thoughtful and not, with due respect, Navjot Sidhu", Dr Rajan had said.

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