India’s Finance Minister Arun Jaitley and RBI Chief Urjit Patel are set to meet face-to-face in New Delhi on Tuesday amid mounting tension between them over the autonomy of monetary policy makers. Finance Minister Arun Jaitley will hold a meeting of the Financial Stability and Development Council, which Governor Urjit Patel is scheduled to attend. It comes days after central bank Deputy Governor Viral Acharya’s speech warning of the risks of the government encroaching on its freedom.
The tension prompted former Finance Minister Palaniappan Chidambaram to urge the government and the Reserve Bank of India to work behind closed doors to iron out their differences.
“I think the matter is serious enough and it will be best if the RBI and the government don’t talk across each other through lectures we have had two already,” Chidambaram told reporters. “It might be better if the time-honored practice of the finance minister and the governor of the RBI meeting often in private and talking issues.”
The financial stability committee meets at a time when a systemically important shadow lender defaulted on its debt payments, raising the risk of contagion and casting a long shadow over consumption and growth in Asia’s third-largest economy. India’s struggling banking sector, which has one of the highest stressed asset ratios among major economies, will also likely be discussed.
Acharya’s speech on Friday called for greater powers for the central bank to regulate state-run lenders as it seeks to clean up the country’s banking system. Now, The government hasn’t yet responded officially to the comments. But earlier this year Jaitley said politicians have to unfairly take the blame for any wrongdoing while supervisors get away relatively easy.