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The Supreme Court has recommended a longer and fixed tenure for the RBI Governor, as the current procedure undermines the ability of the incumbents of office to be absolutely independent.
"Though the shorter tenure and the choice given to the Central government to fix the tenure, to some extent, undermines the ability of the incumbents of office to be absolutely independent, the statutory scheme nevertheless provides for independence to the institution as such," said a bench headed by Justice R.F. Nariman.
In a recent verdict, the Supreme Court had termed the Reserve Bank of India ban on dealing in cryptocurrency, and virtual currencies such as Bitcoin "unjustified" and a "knee-jerk reaction".
This verdict was considered a major development for the cryptocurrency sector, as the RBI ban, through a 2018 circular, restricted lenders from banking transactions for cryptocurrency exchanges and traders. The apex court made this observation on the tenure of the RBI Governor while dealing with the argument that the RBI's decision, through this circular, do not qualify for judicial deference.
Although the apex court refused to accept the argument that a policy decision taken by the RBI does not warrant any deference, it cited the global practice on the longer duration and fixed tenure of appointment of the central authorities/banks' top leadership and its impact on policy decision.
"World-wide, central authorities/banks are ensured an independence, but unfortunately Section 8(4) of the RBI Act, 1934 gives a tenure not exceeding five years, as the Central government may fix at the time of appointment," said the top court.
The court cited the current practice in the US. "In the United States of America, the Chairman of the Federal Reserve is the second most powerful person next only to the President. Though the President appoints the seven-member Board of Governors of the Federal Reserve, in consultation with the Senate, each of them is appointed for a fixed tenure of fourteen years. Only one among those seven is appointed as Chairman for a period of four years," it observed, citing that with this fixed tenure, all the members of the Board of Governors survive in office more than three governments.
The apex court also cited the European Central Bank headquartered in Frankfurt has a President, Vice President and four members, appointed for a period of eight years in consultation with the European Parliament. "In fact, all countries have central banks/authorities, which, technically have independence from the government of the country. To ensure such independence, a fixed tenure is granted to the Board of Governors, so that they are not bogged down by political expediencies," it said.
The court also noted that the RBI by virtue of its authority, is a member of the Bank of International Settlements, a position which cannot be taken over by the Central government and conferred upon any other authority. "Therefore, to say that it is just like any other statutory authority whose decisions cannot invite due deference, is to do violence to the scheme of the Act," said the court.