Opinion A costly pause

In an unusual move, the Reserve Bank of India (RBI) on Monday postponed the bi-monthly meeting of the monetary policy committee (MPC), which was scheduled to be held from September 29 to October 1. While the central bank did not cite any specific reason for doing so, the postponement is presumably due to the fact the government is yet to announce the three external members of the six-member MPC. The four-year term of the last three external members — Chetan Ghate, Ravindra Dholakia and Pami Dua — had ended recently. Considering that the timeline for the departure of the external members was known well in advance, the delay in appointing the new members to the committee is inexplicable. The ensuing uncertainty was best avoided.

It has been argued that with headline retail inflation continuing to be elevated, the delay in appointing the new members to the MPC is unlikely to matter as the new members are likely to maintain status quo on rates. But that would be a myopic argument. Firstly, the new members will need time to not only arrive at an informed view on the stance of monetary policy at this critical juncture, but also to be familiarised with the procedures and working of the committee. Secondly, the MPC statement serves as an important document on two counts: One, for providing greater clarity over the state of the economy, and two, for providing forward guidance. Considering that since the onset of the COVID-19 pandemic, the central bank, while providing some directional guidance, has repeatedly refused to provide any firm estimate of either inflation or growth, this would have been an opportune moment for the RBI/MPC to present its own estimates, and lay out the trajectory going forward.

Advertisement

The RBI had previously sought an extension for the three external members until March due to the ongoing pandemic. This would have given the government ample time to select their successors. Inexplicably, again, this request was not accepted. While reportedly, the search committee for selecting the external members, headed by Cabinet Secretary Rajiv Gauba, has recommended a list of candidates, the process of selection appears to have been held up by bureaucratic hurdles. This delay should have been anticipated and avoided. Possible issues of conflict of interest could also have been addressed in time. It is unfortunate that such delays in appointments to key positions are becoming increasingly common. In the past, for example, there have been delays in the appointment of deputy governors of the RBI. There are costs, such instances inject more uncertainty in an already insecure environment. More so, when arguments for modifying the inflation targeting regime are gaining ground.