Union Finance Minister Arun Jaitley, in an exclusive interview with India Today, has confirmed the government invoked Section 7 of the RBI Act. The section empowers the government to give directions to the central bank on matters of public interest. "The government is using every section at its command to nudge the central bank to decide on liquidity and credit issues," Jaitley said, admitting there are liquidity and credit crisis in some sectors.

On the question of impinging on the RBI's autonomy, the Finance Minister said the "government is crossing no red line... it can't be oblivious." He, however, said there's a need for a better interaction between all the stakeholders and the RBI.

The public spat between the government and RBI has laid bare the perceived independence of the RBI. The Deputy Governor of the RBI, Viral Acharya, had also openly warned the government that "the risks of undermining the central bank's independence are potentially catastrophic."

Jaitley said it's not only the current BJP government that has issues with the RBI. He said from India's first PM Jawaharlal Nehru, and Indira Gandhi and Morarji Desai to Yashwant Sinha, Pranab Mukherjee and Chidambaram -- everyone had "issues with RBI governors".

"RBI governors were removed and made to resign by past governments," said Jaitley, junking the claim of hurting the RBI's autonomy.

In an indirect reference to Acharya's comments on the RBI's autonomy, Jaitley said: "At times when invitations to slanging matches are given, a responsible government is entitled to politely decline it."

On reports of the finance ministry's proposal to transfer a surplus of Rs 3.6 lakh crore from the RBI's reserves to the government, Jaitley said there's a need for the RBI to fix reserves it should keep.

Also read: What is Section 7 and how does it curb RBI's independence?

He said: "The RBI reserves are not party funds. I am not looking at the RBI reserves for fiscal deficit. The RBI can keep reserves for adequate security." He added the RBI needs to follow the capital framework, and that there's no need to keep cash reserves double than the global norms.  

The issue of capital reserves had recently become a major bone of contention between the Centre and the apex bank. Jaitley said the debate over the transfer of surplus funds was initiated by the UPA government. "In 2013, Raghuram Rajan as the chief economic adviser wrote to the RBI on the issue of reserves. He went back on the need for capital framework when he became governor."

"You are keeping reserves for a rainy day while generations of people are waiting for rain," said the FM, adding that the RBI surplus funds can be used for "poverty alleviation".

Also read: RBI has more than 'adequate' cash reserves; can transfer Rs 1-lakh crore to govt: report