Former Union finance minister and senior Congress leader P Chidambaram Wednesday warned of “more bad news” if reports stating that the government has invoked Section 7 of the Reserve Bank of India Act were true. He added that it showed that the government was ‘desperate’ and was hiding facts about the economy. Chidambaram reiterated that the UPA government did not invoke Section 7 prior to liberalisation of the economy in 1991, the Asian financial crisis of 1997 or the period after the recession in 2008.
Section 7 of the RBI Act, 1934 allows the government to issue directions to the RBI, after consultation with the Governor of the bank, on issues of public interest.
Chidambaram tweeted Wednesday, “If, as reported, Government has invoked Section 7 of the RBI Act and issued unprecedented ‘directions’ to the RBI, I am afraid there will be more bad news today. We did not invoke Section 7 in 1991 or 1997 or 2008 or 2013. What is the need to invoke the provision now? It shows that government is hiding facts about the economy and is desperate.”
In a speech last week, RBI Deputy Governor Viral Acharya warned that “governments that do not respect central bank independence will sooner or later incur the wrath of financial markets, ignite economic fire, and come to rue the day they undermined an important regulatory institution.”
Meanwhile, former finance minister Yashwant Sinha tweeted Wednesday, “If indeed govt has issued directives to the RBI then its governor should resign forthwith. After CBI it is the turn of RBI. The govt is hell bent on destroying all the institutions of our country. High time the people woke up to these surgical strikes against our own institutions.”
What is Section 7 of RBI Act?
Section 7 of the RBI Act reads: “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.”
“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,” it adds.
Further, the section states, “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.”