Disputes Emerge Between RBI and Finance Ministry Department

D Subbarao, the RBI Governor asserted the independence of Central Bank by verifying interest rates as unaltered on last Tuesday. This provoked unsatisfactory expressions from finance minister P Chidambaram. However, this is definitely not the first interval, where a distance was maintained by RBI from the government. In several episodes the clear conflicts between RBI and finance ministry was thoroughly highlighted. It was prominent in offering licensure to new banks as well construction of sectors and FDI issues. The recent alteration of guard at the ministry of finance has not been altered much, concerning the issues of monetary policies.

D Subbarao was appointed the governor of RBI in 2008. He seems to have overlooked the pressure enforced to cut off rates both directly and indirectly. D Subbarao first served as the finance secretary prior moving onto RBI. During the great crisis in 2008, D Subbarao worked quite close with the finance ministry. Phones and smses were quite often used to take the decisions; disputes appeared when Pranab Mukherjee was appointed the finance minister. A new forum was proposed by the finance ministry to Financial Stability And Development Council, headed by the minister of finance.

Several conflicts have previously risen concerning the RBI’s and finance ministry’s decisions. This involves various consequences; in which the prominence was developed post D Subbarao shifted to RBI, after serving as a finance secretary. The refusal of RBI to exceed the monetary policy, despite the prodding of North Block, under the former minister of finance, Mukherjee eased out the tensions to some extents. Fiscal discipline remained since years but the deficit hiked to 5.8% in 2011-22, which was much more than the budgeted 5.1%. The RBI was then bound to make fiscal consolidation as an obligation prior easing out any monetary policy.

Finance ministry issues directions to PSU banks, which have well cooperated with RBI. Conflicts also rose to the proposal of forming an independent debt management ministry. However, the finance ministry feels that RBI could have offered certifications to swifter.

The clear conflicts are a chase to memories, which are quite clear during the era of YV Reddy at the central bank. Then Reddy was in RBI, and Chidambaram was posted in North Block, when conflicts were clear over certain issues. The commercial environment was marked by tensions very often due to the conflicts between the RBI and financial ministry.

The financial department was observed in conflicts with the RBI, this time it certainly cannot be concluded as the new. Disputes were filed between the two in actions though not officially. However, the effects of these disputes on the finance management of the country were quite clear as well. Consequences were there when these conflicts were resolved but issues regarding a different concern followed it soon after. The RBI and finance ministry clashed in opinions and actions very often, which were highlighted well in media, although the environment never went furious, but the prevailing conflicts were very clear. It was mostly a matter of debt and acceptance, which arose conflicts between the two departments.

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