Proposal for monetary panel on Cabinet agenda this week

Committee is likely to have 6 members; 3 from RBI and 3 from government.

The Union Cabinet is likely to take up the proposal for setting up of the Monetary Policy Committee (MPC) this week. The ministry had circulated a draft Cabinet note regarding the same last month. The MPC, which will take key decisions on interest rate changes, is likely to consist of six voting members — three from the Reserve Bank of India and three government nominees — with the RBI Governor having a casting vote, a government official said.

Post Cabinet approval, a panel headed by a retired Supreme Court judge will be formed to select members of the MPC, the official said. Officials indicated that the government has also put on hold its decision to float an independent Public Debt Management Agency (PDMA) for now. The bill enabling its formation will not feature in the legislative agenda of the ongoing Winter Session in Parliament, they said.

“The statute for PDMA is unlikely in the Winter Session. We have put plans for shell PDMA on hold for now. Going ahead, we plan to form a temporarily functioning base for PDMA from the middle office and then proceed further legally,” an official said.

The government had, in the Finance Bill, 2015, proposed setting up a public debt management agency, which was to take over the role of debt management currently performed by the RBI. The government had initially proposed simultaneous formation of MPC and PDMA to separate conflicting roles of RBI as the one which controls inflation and manages government’s debt.

Although, the government withdrew the proposal at the last minute, the revised draft of the Indian Financial Code (IFC) released in July had recommended setting up the agency. The revised draft of IFC in July had also suggested a 7-member monetary policy panel with the government nominating four voting members. The recommendations of the revised draft had raised a controversy as the government was seen trying to undermine RBI’s powers to decide on interest rates.

Currently, decisions on interest rates are the exclusive domain of the RBI and is decided by the central bank Governor on advice of the technical advisory committee.

As a precursor to the MPC, the government and RBI had already signed a monetary policy framework in February setting an inflation target of four per cent with a plus/minus band of 2 per cent.

Aanchal Magazine

Aanchal Magazine is Senior Assistant Editor with The Indian Express and reports on the macro economy and fiscal policy, with a special focus on economic science, labour trends, taxation and revenue metrics. With over 13 years of newsroom experience, she has also reported in detail on macroeconomic data such as trends and policy actions related to inflation, GDP growth and fiscal arithmetic. Interested in the history of her homeland, Kashmir, she likes to read about its culture and tradition in her spare time, along with trying to map the journeys of displacement from there. ... Read More