In India the tone becomes sour between the prime minister and the central bank

Indian Prime Minister Narendra Modi in June in Singapore.
Indian Prime Minister Narendra Modi in June in Singapore. Edgar Su / REUTERS

The independence of the central bank hampers the Indian government. So much so that his former governor Raghuram Rajan had to come to his rescue on 6 November, remembering in an interview with the CNBC TV18 news channel that are " autonomy Was in the interest of the nation. He even compared the central bank with a belt: "Without this, you can get an accident."

In the run up to parliamentary elections planned for next May, Indian Prime Minister Narendra Modi would like the monetary institution to support consumption rather than fight inflation by lowering key interest rates. It also advocates the return of public banks, burdened by bad debts, so that they can lend more money to small and medium-sized businesses.

On October 26, the vice-governor of the central bank, Viral Acharya, sent a rare warning note aimed, without citing, Mr. Modi: "Governments that do not respect the independence of central banks will sooner or later anger the financial markets and set the economy on fire. "

In the name of "general interest"

The remark is poorly spent with the Minister of Economy, Arun Jaitley, who immediately carried out a counterattack. He criticized the central bank because he " looked elsewhere When public government banks had built up debts under the previous government. Then he added: "The nation is above every institution."

According to the Indian press, the management of Mr. Modi wanted to bend the institution by swinging section 7 of the founding act of the Indian central bank, which dates from 1934, and has never been used until then. This empowers the government to give directions to the governor on behalf of the"Common interest".

If the central bank loses its independence, the financial community has cause for concern. Mr Modi's last important decision without consulting the institution was the demonization of 86% of the banknotes in circulation in November 2016, which reduced the gross domestic product (GDP) and weakened the poorest Indians.

In response to criticism, the government ultimately found support, at least temporarily. He explained in a statement released last week that " the autonomy of the central bank Was a "Essential and accepted governance requirement".