Abstract

The case ‘Govt-RBI Tiff: Is There A Middle Way?’ describes the tiff between India’s central bank, the Reserve Bank of India (RBI) and the Indian government over the autonomy of the central bank. The case starts out with a discussion on the role of the RBI in the development of the Indian economy. The RBI was one of the factors behind the success of the Indian economy. Further, it provides details about the role of the government in the growth of the Indian economy. The case then discusses the dispute between the RBI and the government over the autonomy of the RBI. India had witnessed innumerable tiffs between the RBI and the government since its establishment in 1935. It then describes the spat between Urjit Patel (Urjit), former governor of the RBI; Viral Acharya, Deputy governor of the RBI and Arun Jaitley (Jaitley), Minister of Finance, India. Further the case provides details about the threat of invocation of Section 7 of the RBI Act by the Indian government. Next the case talks about reasons for the rift between the RBI and the government. the two major contentious issues were transfer of surplus reserves and relaxing of norms for weak banks. The ends with an insight into various steps taken by the two to resolve the issues.

Learning Objectives

The case is structured to achieve the following Learning Objectives:

• To analyze the role of a central bank.
• To discuss the priorities of the government and the central bank in managing the economy.
• To discuss the challenges involved in resolving the impasse and its long-term implications.
• Create a roadmap for the governor of the RBI to resolve the problem and prevent such issues cropping up in future.

Keywords

Central bank; Reserve Bank of India; Indian government; Indian economy; Prompt Corrective Action; Section 7 of the RBI Act; Central bank governors; Public sector banks; Central bank’s autonomy; Transfer of the RBI surplus