- RBI, centre locked in tussle over central bank's independence
- PM Modi met Urjit Patel after row came out in the open
- PM met Mr Patel to explain his government's stand, say sources
Prime Minister Narendra Modi and Reserve Bank Governor (RBI) Urjit Patel reportedly met last week in the middle of an unprecedented face-off between the government and the central bank on a range of issues including autonomy. The meeting took place on Friday, news agency PTI reported.
Next Monday, the RBI board is expected to meet for what Congress leader and former finance minister P Chidambaram has called "a day of reckoning".
"The Prime Minister wanted to have a first-hand account and explain to him his government's perspective and that his government is answerable to the people," sources told NDTV on the meeting.
Reports suggest that the RBI is considering a loan restructuring package for small and medium-sized businesses, as well as reviewing lending curbs on some banks. The RBI has barred 11 state-run banks from lending.
The government is seen to have been ramping up pressure on the regulator in recent weeks to relax lending curbs and hand over surplus reserves.
The Congress has alleged that the government, facing huge fiscal deficit in an election year, had demanded Rs. 1 lakh crore from the reserves of the central bank.
When the Governor refused, the government took the "extraordinary, unprecedented step of invoking Section 7 of the RBI Act," alleged Mr Chidambaram. The November 19 meeting might be aimed at forcing the Governor's hand through the RBI board, which is packed with the government's men, he said.
If that happens, the Governor may give in or resign, Mr Chidambaram said.
Section 7 gives the government the power to consult and give instructions to the central bank chief in the name of public interest.
Differences over interest rates are also a factor. While the RBI believes it should have sole responsibility of raising or lowering key interest rates to keep inflation in check, the government has expressed displeasure over the RBI increasing interest rates when it wants them lowered to boost spending.
The feud between the central bank and the government became public last month after RBI Deputy Governor Viral Acharya in a speech on October 26 - which had the backing of his boss Mr Patel - warned that undermining the central bank's independence could be "potentially catastrophic".