No letters sent to RBI beyond purview, Finmin clarifies

Amid reports that the government has invoked Section 7 of the RBI Act apparently to stem the central bank's independence, the finance ministry on Wednesday said the functioning of the government and the central bank have to be guided by public interest and the requirements of the Indian economy.

The statement came after media reports suggested that the Centre has sent one or more letters to the RBI under Section 7 of the RBI Act, 1934, that allows it to issue directions to the central bank after consultation with the Governor on the issues of public interest.

“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,” the finance ministry said in a statement without referring to Section 7.

It said that the Centre has never made public the subject matter of those consultations. Only the final decisions taken are communicated.

“The Government, through these consultations, places its assessment on issues and suggests possible solutions. The Government will continue to do so,” the statement said. A finance ministry official also denied having sent any such letter which is not under its purview.

“Autonomy for the central bank, within the framework of the RBI Act, is an essential and accepted governance requirement,” it said.

The statement comes after a couple of verbal spats between the government and the central bank with the RBI accusing the Centre of undermining its independence and the finance ministry charging the RBI with misusing its autonomy.

The latest standoff between the RBI and the Centre has emerged out of a stiff stance by the central bank on the issue of lending restrictions it has imposed on 11 public sector banks which, according to Finance Minister Arun Jaitley, has stifled economic growth.

There has also been some unease in the government on the issue of interest rates. Closer to elections the Centre wishes RBI cut interest rates but Governor Urjit Patel had abstained from doing so of late.

Meanwhile, senior Congress leader and former finance minister P Chidambaram has sought to know from the government whether such letters have been written and whether the letters specifically refer to Section 7 of the RBI Act?

He said the Congress never used Section 7 in 1991, 1997, 2008 and 2013. What was the need now?

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