Three external members of MPC may get a short extension next week

The government is exploring the possibility of granting a short extension to the three external members in the rate-setting Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) beyond their four-year term ending next week. The pandemic situation has prompted the move even as the search committee is looking for fresh external candidates, according to the government sources.

Indian Statistical Institute professor Chetan Ghate, Delhi School of Economics director Pami Dua and Ravindra H Dholakia of the Indian Institute of Management-Ahmedabad were appointed external members of the six-member MPC on September 22, 2016, for a period of four years, or “until further orders, whichever is earlier.”

The other three in the panel are from RBI as ex-officio members. Governor Shaktikanta Das heads the MPC, while Deputy Governor Michael Patra and Executive Director Mridul K Saggar are the other two.

There’s no provision for reappointment, but an extension can be considered, said a government source involved in the process. The RBI Act states the members of the MPC, appointed under clause (d) of subsection (2) of section 45ZB, shall hold office for a period of four years and shall not be eligible for re-appointment. But experts say an extension through an executive order is not ruled out under the current extraordinary situation.

Decisions in the MPC are taken by majority vote with each member having a vote each. However, if there is a tie, the RBI governor can cast an extra vote to decide on the outcome.

Since February 2019, the MPC has cut policy rates by 250 basis points in phases, while deciding to pause in the August 4-6 policy review to keep the powder dry.

Queries sent to the Ministry of Finance and the Reserve Bank of India (RBI) on e-mail remained unanswered.

Even as the external members continue in their positions till September 21, their role was technically over after the August 4-6 monetary policy meet. Dholakia is now part of a committee that would assess the moratorium impact on interest payment to borrowers . The next policy deliberations are due on September 29-30 and October 1, and the MPC will have to on-board new members before that, or continue with the existing ones for this policy at least.

Last month at a Business Standard event, RBI governor Das had said while the government had the prerogative to appoint members, “conflict of interest has to be taken into consideration”. The RBI governor is part of the selection panel, which is headed by the Department of Economic Affairs secretary.

Typically, the MPC meets six times a year, but in FY20, it had an additional meeting in March end to assess the current and evolving macroeconomic situation during Covid-19. In April, the RBI decided on a reverse repo rate cut without deliberating with the MPC in a formal set up, as it was not the policy rate.