Blaming the RBI shows that they don't know what to do.

In an alarming escalation of tension between the government and the Reserve Bank of India (RBI), the government has invoked Section 7 of the RBI Act which has never been used before and empowers the government to give instructions to the RBI on what it should do. The government has sent letters to the RBI giving instructions "on issues ranging from liquidity for NBFCs, capital requirement for weak banks and lending to SMEs". Human beings learn from experience which they use to solve problems but politicians seem to wear blinkers, whether because of ignorance or hubris we do not know. If they look a little to the west they will see that President Recep Tayyip Erdogan of Trukey took control of the central bank in July and appointed his son-in-law Berat Albayrak as minister of treasury and finance. The lira fell by 16% and Erdogan was left begging his people to sell dollars and gold to buy the lira. Despite interest rate at 17.75% inflation was running at 16% but Erdogan would not allow the central bank to raise rates, "Because my belief is: interest rates are the mother an father of all evil". The central bank defied Erdogan and raised interest rate to 24% which has strengthened the currency to 5.48 to the dollar. Differences between the government and the RBI have been simmering for sometime. The government earned windfall revenues of over Rs 10 trillion by increasing taxes on fuel, as crude oil prices fell from over $100 per barrel in 2014 to around $30 in 2015, which was used for social schemes. As crude oil prices went up fuel prices in India soared because the rupee fell at the same time. The government is stuck. High prices are causing a lot of anger, which is bad before elections, and it cannot reduce taxes on fuel products without massively increasing fiscal deficit. In its desperation it has vented its fury on the RBI for not stimulating the economy by reducing interest rates, by not paying greater dividend from its reserves, for not preventing public sector banks from accumulating bad loans, for asking banks to clean up their books before resuming lending and for not injecting more liquidity into non banking finance companies (NBFC). The RBI is unhappy with government interference, for appointing stooges to its board and for proposing a separate payments regulator. This prompted the Deputy Governor of the RBI Viral Acharya to draw a comparison with Argentina where former President Cristina Fernandez attempted to raid central bank reserves, resulting in an economic and constitutional crisis. Argentina has just negotiated a loan from the IMF to steady its economy. Prime Minister Modi accused the previous government of "telephone banking", meaning ministers would compel public sector banks to lend to cronies. He should have reduced government stake in banks so that the RBI could strictly monitor them. He didn't. Why? Because he has indulged in his own "telephone banking" by forcing banks to lend for small businesses so that Rs 6.37 trillion could turn bad. Turkey, Argentina, maybe even Venezuela Modi has many choices. Why blame the RBI?