Podcast | Why is the RBI at Loggerheads With the Centre?

The RBI has warned the Centre against interfering with its autonomy. But why this face-off now? Listen in!

Why is the Reserve Bank having a face-off with the Centre? 

(Photo: The Quint)

First it was the infighting in the CBI, and now, the RBI has warned the government against interfering with its autonomy and independence. But why is the Reserve Bank having a face-off with the Centre ? Listen in!

After top CBI officials Alok Verma and Rakesh Asthana turned on each other in public, it looks like now it’s the RBI’s turn to put its internal problems under the spotlight.

Early on 31 October, CNBC-TV18 reported that RBI governor Urjit Patel was likely to resign from his role as the governor of India’s central banking institution.

This report was quickly followed by another from BloombergQuint, stating that the government had sent letters of consultation to the RBI under Section 7 of the RBI act, on the subject of “prompt corrective action.”

But What is Section 7?

The RBI is an entity that’s independent of the government. It takes its own decisions. But, in some instances , it has to listen to the government. The imposition of Section 7, is one of those instances.

Section 7(1) of the Reserve Bank of India Act says the Centre may, from time to time, give such directions to the Bank, after consultation with the governor of the RBI, considered necessary in the public interest.

Section 7(2) adds – 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.

In fact, in a speech last week, RBI deputy governor Viral Acharya had issued a caution against the Centre interfering with the functioning of the RBI, indicating that ties between the two were more than a little strained. So, the possibility that the two are at loggerheads cannot be dismissed.

Opposition Slams Centre Over RBI Turmoil

The Finance Ministry issued a statement that said, “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. 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.”

Meanwhile, the Opposition didn’t waste the opportunity to attack the government on these developments. AIMIM leader Asaduddin Owaisi called the reports “consistent policy of the Modi government.”

Congress President Rahul Gandhi went a step further, saying “the systematic destruction of india’s institutions is nothing short of treason.”

Meanwhile, the Centre has continued to insist that it respects the autonomy of the RBI, and that consultations with the bank are part of business as usual.