The tussle between the finance ministry and the Reserve Bank of India (RBI) on the issue of rate cut came out into the open soon after the MPC meeting. Chief Economic Advisor Arvind Subramanian said, “In recent times, seldom have economic conditions and the outlook warranted substantial monetary policy easing.”
The rather strongly worded rejoinder by Subramanian to the MPC decision got the backing of Finance Minister Arun Jaitley while he was abroad, as well as from the Prime Minister’s Office, top government officials told Business Standard.
RBI Governor Urjit Patel, replying to a media query at a conference on Wednesday, said that MPC members had declined to meet government officials for pre-policy meetings. When Patel was asked about details of a pre-policy meeting and if it compromised the autonomy of the RBI, he said: “The meeting did not take place. All the MPC members declined the request of the finance ministry for that meeting.’’
It is now expected that the government may decide to write in a clause in the appropriate legislations for such meetings to become operational in the future? Sources pointed out that there is much disappointment among top policymakers regarding recent work done by RBI. Apart from refusal to cut rates, RBI has not taken any action since the ordinance to deal with non-performing assets was cleared by the Cabinet and the President, sources said. The RBI delay in reporting on the returns from demonetisation has also upset the government.
The plan for a formal meeting between the monetary policy committee and finance ministry mandarins was thrown up at an internal meeting in North Block? sometime earlier this year?, where the finance minister too was present. It followed a presentation made by the CEA within the department of economic affairs which made a strong case for reduction of interest rates in the economy.
Finmin officials are surprised that having settled the subject before the meeting of the MPC, the Governor should have chosen to refer to it, publicly.