In a statement issued by the Union finance ministry, the Centre emphasized that the governments in India have “nurtured and respected” the governance requirement
New Delhi: As the differences between the government and the central bank are out in open, the Centre on Wednesday said that autonomy of the central bank is essential within the framework of the RBI Act.
In a statement issued by the Union finance ministry, the Centre emphasized that the governments in India have “nurtured and respected” the governance requirement.
Media reports stated the government has invoked Section 7 of the RBI Act, a law allows it to issue directions to the RBI Governor in matters adhering to public interest, which was never been used in the past.
Following which, news about Reserve Bank of India Governor Urjit Patel’s resignation surfaced given a breakdown in relations with the government, sparking a sell-off in the rupee and government bonds.
The Centre has reportedly sent letters to RBI governor Urjit Patel in the recent weeks, exercising its powers under this section, on various issues like liquidity crunch in the NBFC sectors, capital requirement for banks and lending to small and medium enterprises.
The Government in a Statement states that the 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.— Ministry of Finance (@FinMinIndia) October 31, 2018
Some important points mentioned in the statement
> Autonomy of RBI within the RBI framework is essential, says the government.
> The government says it will continue to place assessments, suggest solutions post consultations with RBI.
> The government says that extensive consultations take place between the government and RBI frequently.
> The government says that it has never made public the matters of RBI and the government 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 added.
What is Section 7?
Section 7 of the RBI Act, says that the government can consult and give instructions to the RBI Governor on issues that it believes are “serious” and are in “public interest”.
Section 7 has never been invoked in independent India.
If the government invokes Section 7, it would essentially mean the central bank losing its autonomy temporarily.
Read Exclusive COVID-19 Coronavirus News updates, at MyNation.
Last Updated Oct 31, 2018, 2:28 PM IST