Article 7 of the RBI: never used in the past, what powers does it give to the government?

(Express photo of Pradip Das)

BETWEEN TENSIONS between the government and the Reserve Bank of India (RBI), the first took steps to invoke his powers under section 7 of the RBI Act 1934. This is a provision under which the government can instruct the RBI to take certain measures "in the public interest". This provision was incorporated into the law governing not only the RBI, but also regulators from other sectors. However, until now, the government has never exercised its powers under section 7 of the RBI Act.

According to Article 7, "The Central Government may from time to time give the Bank the necessary instructions to that effect. Governor of the bank, judging necessary in the general interest. Subject to such instructions, the general supervision and direction of the affairs of the Bank shall be entrusted to a central board of directors which may exercise all the powers and perform all acts and acts that may be performed or performed by the Bank. "

The government has started the process or the first step to invoke these powers under Article 7, which is to enter into consultations with the RBI governor on issues such as easing The next step would be to give the RBI a directive if the government so wishes – something that has never been done in the history of the RBI until now. RBI.

Such measures would have upset the central bank.On Friday, RBI deputy governor Viral Acharya warned that "governments that do not respect the independence of the central bank will sooner or later suffer the wrath of the financial markets, fuel the economic fire and go wild the day they have undermined an important regulatory institution. "This was at a conference in Mumbai.

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Although the governors of the RBI had already had conflicts with the government, they had never reached the level of the opening of consultations under the section 7.

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Last year, former governor YV Reddy had noted that the government had the power to give instructions. "However, unlike other laws, it is also necessary to consult the governor regarding the RBI before giving the instructions. The independence of the central bank is granted by the government for a specific purpose. Experience has also shown that trust would increase if the spending authority, ie the government, was distinct from the money-making authority, ie from the central bank or the central bank. the monetary authority, "said Reddy in a speech delivered in Chennai on February 22, 2017.

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