The government has initiated talks with the Reserve Bank of India to consider invoking a provision never used before, which could empower it to issue directions to the central bank on certain matters, CNBC-TV18 reported on Wednesday. Unidentified officials told the news channel that it was unclear if holding consultations with the central bank alone meant that the law had been invoked.

According to The Economic Times however, Section 7 of the Reserve Bank of India Act may already have been invoked and could be the reason for a rift between the central bank and the government that has become increasingly public in recent days. RBI Deputy Governor Viral Acharya had on Friday warned that undermining a central bank’s independence was “potentially catastrophic”.

Subhash Chandra Garg, the secretary of the Department of Economic Affairs in the Ministry of Finance, refused to comment on the reports.

Section 7 of the RBI Act empowers the government to consult and instruct the central bank governor on matters it considers to be serious or of public interest. The government has sent letters to the RBI in recent weeks, exercising its powers under the section, on matters such as liquidity for non-banking financial companies, capital requirements for weak banks and lending to small and medium enterprises, The Economic Times reported.

The letters were sent at least a month before Acharya’s speech, an official told BloombergQuint.

The Section 7 of the RBI Act 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.”

Former Finance Minister P Chidambaram wrote on Twitter that if the reports were true, “I am afraid there will be more bad news today”. “We did not invoke Section 7 in [the crises of] 1991 or 1997 or 2008 or 2013,” he wrote. “What is the need to invoke the provision now? It shows that government is hiding facts about the economy and is desperate.”

The rift

In his speech on Friday, Acharya said that governments that do not respect a central bank’s independence sooner or later incur the wrath of financial markets. Government officials had recently called for the RBI to relax lending restrictions on some banks. The RBI also opposed a suggestion by the government’s inter-ministerial committee to set up an independent regulator for payment systems.

Three days after the speech, Reuters reported that the Centre is upset with the central bank for publicly talking about the rift. Senior officials said the government fears the rift could tarnish the country’s image among investors. An unidentified official in the Prime Minister’s Office told Reuters it was “very unfortunate” that RBI took the matters public. The official said Reserve Bank Governor Urjit Patel may face a tough time when he appears before a parliamentary standing committee on November 12.

On Tuesday, Finance Minister Arun Jaitley said the central bank had “looked the other way” when banks were lending “indiscriminately” between 2008 and 2014.

Another government official told Reuters that it was vital that what happened between the government and RBI was kept confidential. “The government respects the autonomy and independence of the RBI but they must understand their responsibility,” the official added.

Government officials said they were surprised that Patel, who was appointed by the Modi administration in 2016 and initially cooperated with the government, is creating tension when the Centre is facing criticism over its handling of the economy before the 2019 General Elections.

The government is also reportedly unhappy with the bank for not cutting interest rates and raising them instead.