The government on Thursday appointed three economists from the academics field as members of the Monetary Policy Committee, which is expected to decide the benchmark interest rates at the upcoming review of the Reserve Bank of India’s monetary policy on October 4. With the government already giving a mandate to the RBI to keep inflation rate at 4 per cent, appointment of its nominees on the MPC will result in a radical shift in the way the central bank decides its monetary policy. The decision on changing interest rate will now be made by the Committee instead of the current practice of RBI Governor alone.
Chetan Ghate, Professor at the Indian Statistical Institute; Pami Dua, Director – Delhi School of Economics and Ravindra H Dholakia, professor at IIM-Ahmedabad have been appointed as the government nominees on the MPC, which is a six-member panel chaired by the RBI Governor Urjit Patel. The Appointments Committee of the
Cabinet (ACC) cleared these three experts as members on the MPC for a period of four years.
“In all likelihood, the MPC will decide on interest rates at RBI monetary policy next month,” a senior finance ministry official said after the names of the government nominees were announced, asking not to be quoted. The RBI nominees on the committee are Governor, a Deputy Governor and one more representative from the central bank.
Ghate was part of a five-member technical advisory committee that provided advice on interest rates to the RBI Governor ahead of each policy review. He was also a member of the panel headed by Patel that had suggested targeting inflation and establishing a panel to decide rates in its report in 2014.
Dholakia has been a member of various committees set up by the central government and has worked with Prime Minister Narendra Modi when he was chief minister of Gujarat, having sat on committees covering finance matters. Career-long professor Dua has taught at the University of Connecticut and Yale University and has been member of various RBI and government expert committees.
The MPC was set up by amending the Reserve Bank of India Act, 1934, through the Finance Act 2016. The MPC will work with regard to setting up interest rate to meet the inflation target fixed by the government. Under the monetary policy framework agreement with the government, RBI is committed to anchor retail inflation at 4 per cent (plus/minus 2 per cent) and has set itself a target of 5 per cent by next March as part of a ‘glide path’ to achieving the median mark.
As per the norms for MPC, each member shall have one vote and in case of a tie, the RBI Governor shall have a casting vote. Members of the MPC will be appointed for a period of four years and shall not be eligible for reappointment.