Letter row: Government says it respects RBI’s autonomy

New Delhi: The Union finance ministry defended itself on Saturday, saying it “fully respects the independence and autonomy” of the Reserve Bank of India (RBI), a comment that came amid swirling criticism of the government for “interfering” in India’s top monetary authority’s functioning on demonetisation.

Opposition parties attacked the Centre on Saturday, a day after a union of the central bank employees wrote to its governor Urjit Patel, protesting operational “mismanagement” after the November 8 recall of high-value currency. The employees alleged that the Centre impinged on the RBI’s autonomy by appointing an official for currency coordination.

“There has been a report in sections of the press that some unions have alleged infringement of the RBI’s autonomy. It is categorically stated that the government fully respects the RBI’s independence and autonomy,” the ministry said. It said consultations between the government and the RBI are undertaken on various matters of public importance, either mandated by law or evolved as a practice. “Such consultations should not be taken as infringement of the RBI’s autonomy,” the finance ministry said.

The RBI employees’ union had said that if it was true that the Centre had sent a joint secretary to coordinate currency chest operations to stay on top of the demonetisation process, it was impinging on the central bank’s autonomy as it did not require any assistance. The union said it was “painful” to note that the RBI was being criticised for its “operational mismanagement”, denting its image “beyond repair”.

The Opposition quickly latched on to the RBI employees’ letter to attack the government amid doubts about the central bank’s independence for agreeing to the implementation of demonetisation with limited preparation.

“This letter from RBI employees is a huge indictment of the Modi government, its attempts to undermine other institutions,” CPI(M) general secretary Sitaram Yechury said on Saturday.

The demonetisation decision that led to a crippling cash shortage across the country has been hugely controversial. The RBI has told a Parliamentary panel that the government had advised it to go for demonetisation on November 7, and the board of the central bank recommended the move the very next day. The government has said in Parliament that it merely acted on the RBI’s advice to demonetise Rs 1,000 and Rs 500 notes to target black money, corruption and terror funding.  

“I don’t think that the employees of a government institution, especially an independent and respectable institution like the RBI, have ever before written against its national policy. Very clearly, the RBI has compromised to an extent never seen ever before. Prime Minister Modi and his government have destroyed RBI, its credibility and the role of an institution,” Congress leader Sandeep Dikshit told ANI.

JD(U) leader Pawan Varma said, “The RBI must retain its autonomy to advice and formulate or recommend policy to the government. It appears in the case of demonetisation that the RBI relinquished its autonomy in order to blindly toe the line as dictated to it by the government.”

The letter comes days after concerns being raised about the RBI’s functioning by at least three former governors: Manmohan Singh (also a former PM), Y.V. Reddy and Bimal Jalan. Former deputy governors, including Usha Thorat and K.C. Chakrabarty, have also voiced their concerns.

The scramble for cash also caused a string of deaths. The PM had promised to restore normalcy by the end of the year, but queues have stayed outside low-on-cash banks and ATM kiosks.