While the revised draft of the Indian Financial Code (IFC) report put out for discussion on Thursday dilutes the role of RBI in the proposed Monetary Policy Committee (MPC) since the majority of members will be selected by the Centre, minister of state for finance Jayant Sinha clarified that the report — the draft is open for comments till August 8 — was only an input into a final decision by the government on the matter. The draft also did away with the earlier suggestion to give the RBI Governor veto power over the MPC members under exceptional circumstances.
Meanwhile, commenting on media reports that the government is seeking to dilute RBI Governor’s powers, chief economic adviser Arvind Subramanian on Friday said, “FSLRC report is a report of FSLRC. It is not the report of the government or the finance ministry. The report is not the view of the government.”
- The Governor’s call
- No decision on curtailing RBI Guv power on rates: Rajiv Mehrishi
- Monetary policy: A 13-year debate on unshackling the Reserve Bank
- No Proof Required: An ideal MPC for India
- Monetary policy committee: Will the Reserve Bank Governor have the last say?
- Indian Financial Code: Draft dilutes RBI Governor’s power; can’t veto on policy rate
The revised draft of IFC, posted on the finance ministry website, has said RBI “must constitute a Monetary Policy Committee to determine by majority vote on the Policy Rate required to achieve the inflation target”. At present, the Governor consults a Technical Advisory Committee, but does not necessarily go by the majority opinion while deciding on the policy stance.
The first draft, submitted in March 2013, too had talked about the committee and majority vote, but gave powers to RBI chairperson to supersede the decision of the panel. “In exceptional and unusual circumstances, if the RBI Chairperson disagrees with a decision taken at a meeting of the Monetary Policy Committee, the RBI Chairperson will have the right to supersede such decision,” it had said. The provision was dropped in the revised draft.
The Financial Sector Legislative Reforms Commission (FSLRC), which was set up on March 24, 2011, for re-writing the financial sector laws to bring them in harmony with the current requirements, submitted its report to the government on March 22, 2013.
(With FE & PTI inputs)