Major discords between Raghuraman and Centre

Friction between government and RBI isn’t new, with the central bank which doubles as the banking regulator in India, having long been accused of working to protect its own turf. Here are some of the major issues on which Raghuram Rajan as RBI governor had differences with North Block:

  1. Interest rates – Govt: Running battle between RBI and govt. Rajan’s tussle during UPA’s term when govt cited weak growth to push for a rate cut. Rift widened after Modi took office, especially with inflation falling. Govt wanted RBI to cut rates, boost growth.

RBI : It cited high fiscal deficit, possible price pressures due to inadequate rains to hold firm. In Jan 2015, almost 8 months after Modi was sworn in Rajan obliged. But quantum of the rate cut was the point of debate.

  1. RBI restructuring – Govt: FM asked RBI to wait, for govt nominees must attend the meeting. RBI pushed the proposal to the next meeting, only to be told that the move wasn’t possible without amending laws. RBI: As NDA took office, RBI moved a note to appoint a COO through a circular resolution around Budget day when govt nominees wouldn’t be present.
  2. Public debt management- Govt: It proposed a law for an independent debt management office, a move that would have curbed RBI’s role.b RBI protested, FM Jaitley went against his team’s advice to withdraw the proposal.
  3. Bond market regulation: Govt : In Finance Bill 2015, govt proposed to transfer powers for regulation of part of the bond market to Sebi. RBI | After protests from regulator, govt dropped the proposal.
  4. Change in regulatory architecture: Govt : It sought to implement the recommendations of the Financial Sector Legislative Reforms Commission which was set up Pranab Mukherjee and sought to bring RBI’s at par with other financial sector regulator. RBI | Lodged a protest, stalling several changes propose.
  5. Monetary policy committee & inflation targeting also became a major issue issue of contention between the government and RBI.

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