Section 7 of the RBI Act of 1934

• The government has used Section 7 of the Reserve Bank of India Act, 1934, for the first time, in the 83rd year of Central Bank.
• IT is a provision under which the government can give directions to the RBI to take certain actions “in the public interest”. This provision has been built into the law governing not just the RBI but also regulatory bodies in other sectors. Until now, however, the government has never exercised its powers under Section 7 of the RBI Act.

What is Section 7, Act 1934?

• The Section 7 Act 1934 provides the government with the power to issue directions to RBI in public interest from time-to-time after consulting the RBI governor.
• The RBI Act 1934, Section 7 of the constitution 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".
• This is the first time in history that the central government has issued this amendment to direct the central bank on the necessary issues for the development of public.

History of RBI Act 1934 Section 7

• The RBI has made a combination of the provisions under the Bank of England Act 1946 and Commonwealth Bank of Australia 1945 on the authority of the central government for issuing directions to the central banks.
• The provision suggested that the Act makes it clear when the government doesn't work according to the advice of the RBI governor, the government will be solely responsible for the action.
• The government was not supportive of the provision at that time and the clauses were re-drafted accordingly.

By: Vishal