Finance Ministry pokes RBI again: DEA Secretary mocks Viral Acharya in tweet

Two weeks ago, Deputy Governor Viral Acharya warned government of 'wrath of financial markets' if the independence of the central bank was curbed. Today, in a clear reference to Acharya's remark, Department of Economic Affairs Secretary Subhash Chandra Garg tweeted that the economic parameters continued to remain strong with no backlash from markets.

In his tweet, Garg wrote: "Rupee trading at less than 73 to a dollar, Brent crude below $73 a barrel, markets up by over 4% during the week and bond yields below 7.8%. Wrath of the markets?"

Rupee trading at less than 73 to a dollar, Brent crude below $73 a barrel, markets up by over 4% during the week and bond yields below 7.8%. Wrath of the markets?

- Subhash Chandra Garg (@SecretaryDEA) November 2, 2018

Garg's rebuttal comes close on the heels of a truce between the Reserve Bank of India (RBI) and the government, and could potentially escalate things. Reports suggest that senior government officials are reportedly upset with the RBI for publicly talking about a rift with the government, fearing it could tarnish the country's image among investors.

While disagreements between the central bank and the government are nothing new, they do not spill into public domain like they have this time. It began when Acharya warned of catastrophic consequences if the autonomy of a central bank was undermined on the grounds of myopic government policy. The North Block was not exactly tickled after hearing Acharya's views, and Finance Minister Arun Jaitley retaliated by holding the central bank responsible for irresponsible lending between 2008 to 2014.

For the time first time in independent India, government had initiated consultations under the Section 7 (1) of RBI Act. The Finance Ministry has reportedly written three separate letters in the past few weeks to the RBI on issues ranging from Prompt Corrective Action (PCA) framework to liquidity management and sought consultation under Section 7 of the RBI Act.

One of the letters pertained to use of the RBI's capital reserves for providing liquidity to the market and another was for relaxing constraints on banks for loans to small and medium enterprises (SMEs). The government wants RBI to carve out exemption for power companies under the PCA framework that outlines triggers for declaring a loan account as stressed or NPA.

Asked if the government has invoked the never-used provision under Section 7 of the RBI Act, Finance Minister Arun Jaitley said communications and layers of consultations between the government and the RBI haven't ever been disclosed. "Final decisions arrived at are only communicated," he said.

Edited by Vivek Punj