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Cabinet Note Moved on Monetary Policy Panel

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Committee may have three government nominees and four from the RBI, with the governor as chairman
The government has moved a cabinet note on the creation of a monetary policy committee (MPC) as part of plans to reset a framework for this in line with international best practices.
The committee is likely to have three government nominees and four from the Reserve Bank of India, with the governor as chairman.There may not be any veto for the governor but the person will have a casting vote in case of a tie.
A government official confirmed that the note had been moved by the finance ministry after it completed inter-ministerial consultations on the proposal.
The establishment of the committee will mark a radical shift in how monetary policy is decided in India, making it transparent than it is now.
Currently, the RBI governor de cides monetary policy and the board only has an advisory role.
Finance minister Arun Jaitley had, in his February budget speech, announced the new monetary policy framework along with an inflation target of 4% with a band of 2% on either side. But this didn't include details on the committee's composition. The government is keen to introduce legislation to amend the RBI Act in the winter session of the Parliament. This will enable the committee's creation with powers to decide on the monetary policy in line with the inflation target The composition of the panel proposed under the Indian Financial Code has seen changes. The first version gave the central bank gover nor a veto while the second didn't, drawing flak for seeking to dilute the RBI's autonomy.
The proposed framework draws from the work of a number of expert committees on financial sector reforms including the high-powered expert committee on making Mumbai an international financial centre and one headed by Raghuram Rajan before he became RBI governor, besides the findings of the Urijit Patel panel and the Financial Sector Legislative Reforms Commission (FSLRC).
The Patel committee on revising and strengthening the monetary policy framework mooted a switch to the consumer price index as the nominal anchor for inflation and proposed a monetary policy committee headed by the governor with rate action decided by votes, a model followed by the US Federal Reserve. The FSLRC recommended that price stability was a desirable goal in its own right, particularly in India where inflation is known to hurt the poor and therefore the central bank must be given a quantitative objective that can be monitored by the central government.
The Mumbai IFC panel had said the gold standard for a monetary policy framework was a transparent, independent, inflation-targeting central bank.
The Economic Times, New Delhi, 26th August 2015

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