PM Modi (R) and RBI governor Urjit Patel

NEW DELHI: The government on Monday sought to calm the recent hostility with the Reserve Bank of India and said differences with the central bank had been there before and governor Urjit Patel would not be pushed out.

“Differences between the government and the apex bank are not unprecedented but a common occurrence with several governments witnessing such situations in the past,” a government source said and listed out several instances when the two crucial wings responsible for economic policy did not share the same point of view.

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Patel’s tenure ends in August and he will complete his term, a government official said. Since tensions erupted in public 10 days ago, there has been speculation about Patel’s fate. In fact, there were rumours last Wednesday that he was contemplating resignation after the government sought formal consultations with the central bank under Section 7 of the RBI Act.

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Shortly after, the government issued a statement emphasising the RBI’s autonomy but said both sides had to work in “public interest” and the “requirements of the Indian economy”. While the government is pushing the regulator to address its concerns related to liquidity, credit flow and the prompt corrective action framework governing weak banks, it does not want a fresh crisis at the RBI.

On Saturday, TOI had highlighted the past power struggle between the government and RBI governors, starting with Osborne Smith, the first governor of the central bank, who had put in his papers in 1937.

Similarly, in 1957, Benegal Rama Rau resigned after PM Jawaharlal Nehru sided with his finance minister T T Krishnamachari’s Budget proposal on increasing the stamp duty, which the RBI argued would effectively raise interest rates. As reported by TOI on Monday , Nehru wrote to Rau, “You have laid stress on the autonomy of the RBI. Certainly it is autonomous, but it is also subject to the central government’s directions. Monetary policies must necessarily depend upon larger policies which a government pursues. It is in the ambit of those larger policies that the RBI can advise. It cannot challenge the main objectives and policies of the government.” Days later, Rau stepped down. “What Nehru said remains true now,” the government source said on Monday.

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