Rift between Centre and RBI widens over note ban

The rift between Reserve Bank of India and the Centre has widened over the execution of demonetisation, in the last few weeks.

Rift between Centre and RBI widens over note ban

The rift between Reserve Bank of India and the Centre has widened over the execution of demonetisation, in the last few weeks.

There have been number of instances where the RBI and the central government in the past have differed over policy issues but this time due to demonetisation, the relation between the two has further strained.

Since November 8, the day Prime Minister Narendra Modi announced the demonetisation of Rs 500 and Rs 1000 notes, both RBI and the central government have been facing people’s wrath due to poor implementation of the decision.

The stress of managing the process of demonetisation has brought to the fore the lack of coordination between the RBI and the government.

The rift between the two became public when the notification that put conditions on deposit of old notes worth over Rs 5,000 after December 20 was brought by the RBI. Though the
finance ministry took the decision, sources say that the RBI notification was "badly drafted", particularly the section that made it mandatory to explain the reasons for delaying deposit of scrapped notes, reported Times of India.

In an embarassment the RBI had to withdrew the notification on Wednesday as it attracted a flak from people.

The RBI has brought more than 45 notifications regarding demonetisation since November 8, which the central bank, thinks has tarnished its image, most of which are issued on directions from the government.

On the other hand a section within the government feels that RBI has been slow in reacting to cues. For example, it took the central bank three days to frame the rules that allowed families that had a wedding during November and December to withdraw Rs 2.5 lakh in new currency. When RBI did come out with the rules, they were so stringent that it was almost impossible to withdraw the money. The government had to step in and RBI eased one condition.