Citing strong fundamentals, Reserve Bank of India (RBI) Governor Urjit Patel said a group of lawmakers on Tuesday that the impact of demonetization was “transient” and the economy had registered a robust credit growth of 15 percent this fiscal. The RBI chief, seen to be at odds with the government over a range of issues comprising a liquidity crisis and transfer of surplus funds, was briefing the Standing Committee on Finance on the state of the economy and the impact of the 2016 demonetization. Former Prime Minister Manmohan Singh of the Congress is also a member of the committee led by senior Congress leader and former Union Minister M Veerappa Moily
The RBI governor faced many questions concerned to the feud with the government, the proposal to reform the functioning of the RBI – which the central bank fears will impact its autonomy – and the proposal to share RBI’s reserves with the government.
The RBI Governor did not mention anything about Section 7 of the RBI Act. Earlier, there were reports that the government had invoked Section 7 of the RBI Act to direct the top bank in matters of public interest. According to Section 7 of the RBI Act, the central government is empowered to matter directions it considers important for the public interest to the central bank.
The government and the RBI have been at loggerheads over matters comprising the transfer of surplus funds, easing of bad-loan rules and providing liquidity to the shadow-banking sector. A marathon board meeting last week, which brought the RBI chief face-to-face with government nominees, was seen to end on a conciliatory note after the central bank ceded some of the demands of the government, comprising agreeing to set up a panel on sharing of surplus reserves with the government.
The rift between the RBI and the government came out in public domain after deputy governor Viral Acharya, citing an example of the Argentinian crisis of 2010, criticized the government for interfering in the top lender’s decision-making process and thereby undermining its autonomy. There have been allegations that the government, keen on boosting the economy ahead of central elections in 2019, had asked the RBI to give some of its surplus reserves. The Congress had said the amount could hover around Rs. 1 lakh crore.