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Finmin RBI Agree on Monetary Policy Panel

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Composition of committee different from that proposed in revised IFC; finance secy says IFC not the work of FSLRC
The finance ministry has reached an agreement with the Reserve Bank of India (RBI) on the contours of the monetary policy committee under the framework unveiled in the Budget, an official said, as the government sought to quell the controversy over the recently issued draft Indian Financial Code (IFC).
The composition of the committee is different from that proposed in the revised IFC, which had put government nominees at a majority four out of seven with no veto for the RBI governor.
“It has been worked out... It is different from what is proposed in the IFC,“ said the finance ministry official cited above, indicating that operative parts of the draft may have been rendered irrelevant.
Finance Secretary Rajiv Mehrishi confirmed that there had been progress independent of the IFC. “We are in discussions with RBI governor on the form and manner of the MPC (monetary policy committee). And, in fact, we now have a position which is actually agreed,“ he told reporters in New Delhi on Monday . “It will ultimately be disclosed only in Parliament,“ said Mehrishi.
The government sought to gloss over the revelation that the IFC wasn't the work of the Financial Sector Legislative Reforms Commission (FSLRC) as had been widely understood. Mehrishi suggested that the revised IFC, which was roundly criticised for seeking to usurp the powers of the central bank governor, encapsulated the view of the “people of India.“
The ministry clarified on Monday that the latest IFC version had been prepared by a group led by justice BN Srikrishna, who headed the erstwhile FSLRC, based on feedback sent to it by the government after “collating“ and “eliminating duplicacies.“
“The people of India own this draft, that is why it is in the public domain... Please see the website, it does not ascribe it to FSLRC,“ Mehrishi told the hurriedly summoned press conference. The FSLRC no longer exists, having actually been wound up after submitting its report in March 2013.
“The point is some confusion has been created because basically it is IFC 1.1,“ Mehrishi explained. “Everything is in public domain including constitution of the committee headed by Justice Srikrishna. If you look at the website, that clearly says that certain changes have been made.It does not say that it is by the FSLRC,“ he told reporters.
Srikrishna and FSLRC member M Govinda Rao have said that the latest draft doesn't reflect the commission's views, contradicting previous government pronouncements that ascribed authorship of the revised draft to the defunct commission.
Both Minister of State for Finance Jayant Sinha and Chief Economic Advisor Arvind Subramanian referred to the draft as being written by the FSLRC. Mehrishi admitted that the finance ministry had sent suggestions to the group working on the revisions. “These were various suggestions which were sent to Justice Srikrishna... And thereafter we received a draft, a second draft, which can be called IFC version 1.1, which we have put in public domain again for comments,“ Mehrishi said, adding that the government was yet to apply its mind to the report.
“A final view would be taken based on the feedback, on international best practices and thereafter in consultation with all the stakeholders...The very fact that the comments have been sought on the website is indicative of the fact that the matter is still under discussion... This is still to be considered by the government as a discussion paper,“ Mehrishi said.
He said it would be incorrect to jump to the conclusion that the government intended to curtail RBI's powers. “Government decisions are taken in a manner which is well read out... It goes out to cabinet, then it is presented to Parliament. What is government's view would ultimately be revealed in the draft Bill, which government will place before Parliament as and when it happens. As of now, government has no view on any of the 400 sections (of the IFC),“ he said.
Additional Secretary on RBI Board Mehrishi defended the finance ministry's decision to depute an additional secretary to attend RBI board meetings, rather going himself.
“I have only one point to make ­ surely the government has the right to decide who represents it,“ Mehrishi said, when asked to comment on the recent government order to this effect. “In exercise of the power conferred by clause (d) of sub-section (1) of section 8 of the RBI Act 1934, the central government hereby nominates Ajay Tyagi, additional secretary (investment) department of economic affairs, ministry of finance, to be director on the central board of directors of RBI with immediate effect until further order vice Rajiv Mehrishi,“ the finance ministry said in a June 22 notification.
The Economic Times, New Delhi, 4th August 2015

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