Indian Finance Minister Arun Jaitley said the government and central bank are having "free and frank" discussions, dismissing speculation of disputes as the Reserve Bank of India undergoes the biggest overhaul in its history.

"There is no question of any disconnect," Jaitley said after a customary annual appearance before the bank's board to explain steps proposed in last month's budget.

Jaitley and central bank Governor Raghuram Rajan are in talks to finalize a structure for a rate-setting committee similar to the Federal Reserve Board or Bank of England, as well as formalize the government's decision to separate debt and monetary management. They have already agreed on a formal inflation target, a decision announced in the budget.

"All issues which concern both the institutions are regularly discussed," Jaitley said at a joint press conference with Rajan on Sunday in New Delhi.

At the same briefing, Rajan said the Reserve Bank agrees with the government's intent to create a separate debt management office. A panel is working on specifics, he said, without sharing more details.

"A public debt management agency as a professional organization, independent of the central bank, independent of the government, is something that is desirable," he said. "It puts discipline on the government debt process."

A Monetary Policy Committee would replace the current rate-setting system once the RBI Act of 1934 is amended. The debate hinges over how much power the government will have in appointing members.

Inflation safeguard

With food prices contributing more than 45 percent to Indian inflation and the nation dependent on timely and sufficient rainfall, interest rates are the only tool available to the central bank in case inflation spikes.

From the fiscal year ending in March 2017 onward, the central bank will target inflation of 4 percent, plus or minus 2 percentage points. Consumer-price inflation accelerated to 5.37 percent in February, still within the target of 6 percent for January 2016.

Shortly after the announcement of the inflation target, Rajan lowered the benchmark repurchase rate for a second time this year. Interest-rate swaps show traders predict he'll cut the rate by a further 50 basis points by the end of this year, a move Jaitley has repeatedly called for.

Unseasonal rains have damaged crops and that "could impact on inflation, on certain shortages", Jaitley told CNN-IBN in an interview on Saturday. The damage has affected more than 5 million hectares in a nation where farming provides a livelihood for more than half its 1.25 billion people, according to figures given by Agriculture Minister Radha Mohan Singh to the upper house on March 4.

"There is no direct one-to-one correlation between rains and prices," Rajan said on Sunday. "Sometimes it helps, sometimes it hurts. What it does mean is we have to be more careful on food management. It means greater vigilance."

(China Daily USA 03/24/2015 page16)