Consider the following statements:
- The Governor of the Reserve Bank of India (RBI) is appointed by the Central Government.
- Certain provisions in the Constitution of India give the Central Government the right to issue directions to the RBI in public interest.
- The Governor of the RBI draws his power from the RBI Act.
Which of the above statements are correct?
- 1 and 2 only
- 2 and 3 only
- 1 and 3 only
- 1, 2 and 3
Explanation
Statement 1 is correct
- The Financial Sector Regulatory Appointment Search Committee (FSRASC) usually holds the list of names who get interviewed for the RBI governor post. Members of FSRASC include the cabinet secretary, the RBI governor, the financial services secretary, and two independent members. The name chosen from the interviews is usually sent to the Appointments Committee of the Cabinet, headed by the prime minister, for final approval. After the final nod by the Appointments Committee of the Cabinet, the appointment is confirmed. The governor and not more than four deputy governors of the RBI are appointed by the central government under the RBI Act.
Statement 2 is incorrect
- Section 7 in the Reserve Bank of India Act, 1934 (not in the Constitution) mentions 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.
Statement 3 is correct
- The RBI Governor draws his powers from Section 7 (3) of the RBI Act, wherein he can exercise all powers and do all things that may be exercised and done by the RBI. However, under Section 58, the RBI board can make regulations that will give it the power to override those of the Governor.
- But this is subject to two important conditions.
- First, the regulations have to be consistent with the provisions of the RBI Act, which essentially means that the board has to act within the framework of the Act.
- Second, these regulations have to go through an elaborate approval process before they become law (Section 58(4)).
- The board has to forward the regulations to the Centre, which will have to table them in both Houses of Parliament. Members have a period of 30 days within which they can either suggest modifications to the regulations or annul them.
