Did it or didn't it? FinMin silent over invocation of section 7 of RBI Act

Reserve Bank of India | File Photo
Skirting the crucial issue of whether it has invoked section 7 of the RBI Act, the finance ministry on Wednesday said the autonomy of the central bank within the purview of the Act is an essential and accepted governance requirement. 

"Governments in India have nurtured and respected this," the ministry said in a statement. 

However, when it came to the crux of the issue of invoking section 7 of the RBI Act, it said the government has never made the subject matter of those consultations public. 

"Only final decisions are taken are communicated," the ministry said. 

It said 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," the statement said.  

The government, through these consultations, places its assessment on issues and suggests possible solutions, the statement said, adding the Government will continue to do so. 

Section 7 of the RBI Act empowers the government to issue directions to the RBI, after consultation with the Governor, on issues of public interest.

The speculations are flying thick and fast that the government recently invoked the section to give directions to RBI on issues ranging from liquidity to NBFCs among others. 

Meanwhile, former finance minister P Chidambaram said," if...Government has invoked section 7 and issued unprecedented directions to the RBI, I am afraid there will be more bad news today."

He recalled that the government did not invoke the section in the crises of 1991, 1997 and 2008. 

"What is the need to invoke the provision now? It shows that the government is hiding facts about the economy and is desperate," Chidambaram said. 

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