By Anjan Rajamani, with inputs from moneycontrol.com
Section 7 of RBI act, when imposed would challenge the autonomy of the central bank
In an ongoing feud between the Reserve Bank of India and the government, the Centre has called upon Section 7 from the RBI act, allowing the government to give directions to the RBI in issues which it considers to be in public interest.
We did not invoke Section 7 in 1991 or 1997 or 2008 or 2013. What is the need to invoke the provision now? It shows that government is hiding facts about the economy and is desperate
— P. Chidambaram (@PChidambaram_IN) October 31, 2018
The Central bank, which is meant to function in autonomy, has alleged that the government has tried to interfere with its functioning. The Centre has reportedly sent letters to RBI governor, Urjit Patel in the recent weeks, exercising its powers under this section, on the central bank’s interest rate policy among others. Finance Minister Arun Jaitley criticized the RBI for “looking the other way” during the UPA era when “banks were asked to lend recklessly”. Imposing of Section 7 requires consultation between the Governor of India and the Governor of RBI. Urjit Patel may offer to resign if the Section 7 gets imposed.
— TCA Sharad Raghavan (@SharadRaghavan) October 31, 2018
The finance ministry had released a press release stating, ‘The autonomy of the central bank is an essential and accepted governance requirement’ and ‘both the government and the central bank have to be guided by public interest’ furthermore stating that the government and the RBI are consulting over several issues.