On Thursday, the Union government proposed to strip the RBI Governor’s veto vote on the monetary policy of India. The government proposed to provide the power to employ four of the six members of the Monetary Policy Committee, the remit of those will include the decisions on setting the interest rates in order to maintain the inflation at the targeted level.
This revised draft of the IFC (Indian Financial Code) put forth by the Union Finance Ministry for the comments suggests that the Chairperson of Reserve Bank shall head this committee without any reference to the Governor. It remains unclear from the draft if a re-designation is in plans.
As per the proposal of an earlier draft, the right to take precedence the decision of the monetary policy committee is given to the Governor. If this inflation goal is not met, the Reserve Bank will explain the reasons and also propose the remedial actions. The revised draft suggests that the non-government members of this committee are to be pinched off the Reserve Bank.
The Board of Reserve Bank will appoint one of its executives as the committee’s fifth member. The Chairperson will then appoint an employee as the sixth board member. This move comes at a time when there is a severe breakdown of the discussions between the Reserve Bank and the Centre regarding the amendments to the RBI Act that the Finance Minister, Arun Jaitley announced in his speech during the Budget.
As there was an opposition to them by the Reserve Bank, the minister dropped the amendments that were proposed from the Finance Bill. The Reserve Bank rejected the diluted proposal made by the Finance Minister for a non-statutory Public Debt Management Authority. Instead, it proposed a public debt management cell that is to be headed by the Finance Secretary.
Of the proposed amendments that were dropped from the Finance Bill was the establishment of the authority as a legislative body for debt management issued by the government. This job is current taken care of by the Reserve Bank.
On Tuesday, Raghuram Rajan, the Reserve Bank’s Governor called on the Union Finance Minister Arun Jaitley. The ministry is all set to sought comments on this draft by August 8.
