Govt vs RBI: What is Section 7 of the RBI Act?

New Delhi: Amidst the alleged rift between the government and RBI, reports have poured in that the government has sought consultation under Section 7 of the RBI Act. Section 7 of the RBI Act empowers the government to consult and give instructions to the governor to act on certain issues that the government considers serious and in public interest.

The alleged tug of war between the RBI and the government has spilled into the public domain after Deputy Governor Viral Acharya said last week that undermining central bank independence could be "potentially catastrophic", indicating the authority is pushing back against government pressure to relax its policies and reduce its powers ahead of a general election due by May.

Meanwhile, the Finance Ministry has emphasised on “public interest” and “requirements of economy” as the guiding force for both the parties, adding that it has never made consultations with the central bank public.

Here's how RBI describes Section 7 of RBI Act

(1) 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.

(2) Subject to any such directions, the general superintendence and direction of the affairs and business of the Bank shall be entrusted to a Central Board of Directors which may exercise all powers and do all acts and things which may be exercised or done by the Bank.

(3) Save as otherwise provided in regulations made by the Central Board, the Governor and in his absence the Deputy Governor nominated by him in this behalf, shall also have powers of general superintendence and direction of the affairs and the business of the Bank, and may exercise all powers and do all acts and things which may be exercised or done by the Bank.