The Finance Ministry on Wednesday reacted over reports of Modi government invoking section 7 of the RBI act that allow it to issue directions to the central bank governor on matters of public interest.
The Finance Ministry on Wednesday reacted over reports of Modi government invoking section 7 of the RBI act that allow it to issue directions to the central bank governor on matters of public interest.
The government in a released statement said, "Autonomy for the Central Bank, within the framework of the RBI Act, is an essential and accepted governance requirement. Governments in India have nurtured and respected this. Both the Government and the Central Bank, in their functioning, have to be guided by public interest and the requirements of the Indian economy."
"For the purpose, extensive consultations on several issues take place between the Government and the RBI from time to time. This is equally true of all other regulators. Government of India has never made public the subject matter of those consultations. Only the final decisions taken are communicated. The Government, through these consultations, places its assessment on issues and suggests possible solutions. The Government will continue to do so," it further added.
The FinMin's statement came after a newspaper report claimed that the government had sent letters to the RBI governor in recent weeks exercising powers under section 7 of the RBI Act on issues ranging from liquidity for non-bank finance companies, capital requirements for weak banks and lending to small- and medium-sized companies.
It further claimed that the government has invoked never used before Section 7 of the RBI act. According to the section 7, the Central Government may from time to time give such directions to the Bank as it may, after consultation with the Governor of the Bank, consider necessary in the public interest’, a statute that has not been used in independent India.
The rift between RBI and the Centre came into highlight after RBI published a dissent note on its website, expressing its disagreement with the government in setting up a separate payments regulator.
It further widened last week after RBI's deputy governor Viral Acharya had made a strong case for the need of autonomy at the country's central bank -- his speech had been widely shared on social media. Citing sources, Reuters reported that the government officials are very upset with the RBI for making the rift public.
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