Watch: 10 flashpoints between the RBI and government It's not the first time that the central government and the central bank are not on the same page while addressing macro-economic issues. Many times in the past, have these confrontations have come out in the open. We list out the instances when these differences have come out in the open ever since the new Governor Urjit Patel took charge of the central bank. Watch now.

The government has invoked never-before-used powers under the RBI Act allowing it to issue directions to the central bank governor on matters of public interest, in a development that gives a new twist to the ongoing skirmish between RBI and the government.ET has learnt that separate letters have been sent to the RBI governor in recent weeks — exercising powers under this section — on issues ranging from liquidity for NBFCs, capital requirement for weak banks and lending to SMEs.The unprecedented move could have triggered last week’s rare public assertion of independence by RBI, with deputy governor Viral Acharya warning the Centre of disastrous consequences if the regulator’s autonomy is impinged upon.Section 7 of the RBI Act empowers the government to consult and give instructions to the governor to act on certain issues that the government considers serious and in public interest.This Section had never been used in independent India till now. It was not used even when the country was close to default in the dark days of 1991, nor in the aftermath of the 2008 crisis.“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,” says the Section. An RBI spokesman did not respond to an email seeking comment.It is not yet clear how this Section operates since it has never been used till now.The aggressive move could scandalise a section of academia and experts, while raising questions about the government’s intentions and the impact on Reserve Bank of India ’s autonomy.Using the powers under Section 7 is considered sacrilegious among central bankers as it leaves little scope for the regulator to conduct the affairs in a way they deem fit. It would also set a precedent for future governments to push through their agenda even on minor issues, if there are differences.“A government’s horizon of decision-making is rendered short, like the duration of a T20 match (to use a cricketing analogy), by several considerations,” Acharya had said last week.“There are always upcoming elections of some sort — national, state, mid-term, etc. In contrast, a central bank plays a Test match, trying to win each session, but importantly also survive it so as to have a chance to win the next session, and so on.”The government and RBI have been at loggerheads over a few issues for some time now. While the government believed that easing of lending rules for the 11banks under the prompt corrective action (PCA) framework could help reduce pressure on micro, small and medium enterprises (MSMEs), the regulator stood its ground arguing that such a move would put the clock back and undo clean-up efforts.With the credit markets tightening after the IL&FS default in September, non-banking finance companies lobbied the government for more liquidity.But RBI maintained its position since the banking system did not witness any spike in borrowing costs and the market was just repricing risk in an evolving situation.A recent court order suggesting that the government consider giving directions to RBI under Section 7 of RBI Act in a case involving independent power producers may have opened up the avenue for the Centre. Power companies had contested a February 12 circular by the banking regulator that said if a borrower misses payment even for a day, it would be considered a defaulter even though the account will remain standard in the books of the bank.Acharya’s speech last Friday was also unprecedented in its message, where he warned of economies getting punished for imprudence which the central banks are always against.“As many parts of the world today await greater government respect for central bank independence, independent central bankers will remain undeterred,” Acharya said. “Governments that do not respect central bank independence will sooner or later incur the wrath of financial markets, ignite economic fire, and come to rue the day they undermined an important regulatory institution; their wiser counterparts who invest in central bank independence will enjoy lower costs of borrowing, the love of international investors, and longer life spans.”