It is not the first time that there is a conflict of interest between RBI and Government of India. It was there from the days of first Governor of RBI, Mr. Osborne Smith and continues till now. According to former RBI Governor Mr. YV Reddy, ' there is no such thing as blanket independence. RBI is independent within the limit drawn by Indian government. Moreover Mr. Raguram Rajan's exit and controversy was open secret in media.
But the people of India are not worried about RBI and its relations with Government. Their worries shoot up when RBI changes the interest rate or any other monetary policy that will affect their life.
But when RBI's deputy governor Mr. Viral Acharya dropped the bombshell on 26th October, about the central government and its attitude, citizens of India are really worried.
Mr. Acharya's words are, " Governments that don’t respect the independence of their central banks will sooner or later incur the wrath of financial markets, ignite economic fire and come to rue the day they undermined an important regulatory institution.”
Further he compared India with Argentina, seven times defaulted country on international debt, since its Independence from 1818. Contrast to this India is having spotless record.
At this time India is facing economic slowdown, US oil sanctions on Iran(now it is solved) fragile macro economic and financial stability, increasing petrol prices. Mr. Acharya's threat will definitely send negative signals to FDIs and in turn they will pull their investments from Indian market. That will negatively affect our economy.
Definitely RBI's lament may lead to more stress in the economy.