RBI vs Modi government: All about the spat, Section 7
The ongoing spat between the Reserve Bank of India (RBI) and the Modi government is public knowledge by now. In the latest development to the spat, several media reports on Wednesday claimed that the government was considering invoking Section 7 of the RBI Act in a bid to have some control over the autonomous, central bank's functioning. What exactly is going on? We explain.
Making the spat public irked the Modi government
The RBI's conflict with the Modi government came to the fore when RBI Deputy Governor, Viral Acharya, gave a speech to top industrialists on Friday, alleging that the government was trying to interfere in the central bank's functioning. The allegation left many in the Modi government with a bitter taste in their mouth, and several unnamed officials criticized the RBI for making the spat public.
So, what exactly is the spat about?
The spat, and the government's alleged efforts to meddle with the RBI's functioning, is reportedly based on several disagreements between the government and the RBI. As ET reports, the RBI disagrees with the government's demand to ease lending restrictions on banks burdened with significant non-performing assets (NPAs) , and provide adequate liquidity to cash-strapped non-banking financial companies (NBFCs). The RBI is also opposed to the government setting up an independent payments regulator.
Section 7 might be invoked in light of these disagreements
In light of these disagreements, reports claimed that the government was considering invoking Section 7. Section 7 essentially allows the government to consult and instruct the RBI Governor on certain serious issues that it believes to be of public interest. Once Section 7 is invoked, the general superintendence, affairs, powers, and functions of the RBI are entrusted to a Central Board of Directors.
Urjit Patel might resign, if reports are to believed
Reportedly, the Centre has also sent several letters to RBI Governor Urjit Patel over the past few weeks, exercising some of its powers under Section 7. Meanwhile, MyNation has reported, based on its sources, that RBI Governor Urjit Patel is likely relinquish his post on Wednesday if Section 7 is invoked, owing to the potential repercussions of government intervention in RBI matters.
