The Indian government wants the Reserve Bank of India (RBI) to transfer more money into its coffers. Many say this demand was a leading reason for the resignation of Urjit Patel, the central bank’s previous governor, in December. Yet this is just one of several points of friction between the government of Narendra Modi and the RBI. This friction risks damaging the RBI and the credibility of Indian economic policy. It is important for the central bank and government to work together harmoniously; it is no less vital that the RBI retains credible autonomy when executing its core functions. In addition to the question of transfers from the RBI, the government fears the central bank is allowing the economy to become too weak and inflation too low. With a general election now close, it also wants the RBI to encourage more bank lending, including from 11 undercapitalised public sector banks; improve liquidity for nonbank financial companies; and increase the flow of credit to small busine...

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