 "Monetary policy panel contours still 4-6 months away")
The final contours of the composition, responsibility, and powers of the proposed Monetary Policy Committee (MPC) are still four to six months away from being finalised. This might lead to the necessary amendments in the RBI Act to be introduced in Parliament much later than originally anticipated, Business Standard has learnt.
Finance Minister Arun Jaitley had promised to soon bring the amendments, which would enable formation of MPC. Minister of State for Finance Jayant Sinha had said in a post-Budget interview in early March that the government would bring the amendments in two months.
However, with composition of the panel and veto power for the chairman being the main sticking points, the MPC might take longer to be formed, government sources say.
There are still differences to be ironed out between the Reserve Bank of India (RBI) and the government. Sources say the finance ministry wants to adopt the key recommendations of the Financial Services Legislative Reforms Commission (FSLRC).
The FSLRC has recommended seven members for the MPC, including the chairman (RBI Governor), one executive member from the RBI Board (likely to be a deputy governor of the RBI), and five members who will be independent experts in the field of monetary economics and finance. Three of the external members will be government nominees, while the remaining two will be picked by the government in consultation with RBI Governor.
RBI wants the MPC on the lines of suggestions made by the Expert Committee to Revise and Strengthen the Monetary Policy Framework, led by RBI Deputy Governor Urjit Patel. The panel has recommended a five-person MPC, with the RBI governor as chairman, the deputy governor in charge of monetary policy as vice-chairman, and the executive director in charge of monetary policy as a member, in addition to two external experts to be decided by the chairman and the vice chairman.
In addition, the FSLRC has recommended conditional veto power for the governor, in that he or she would have the power to override the MPC in exceptional circumstances, but be required to release a rationale statement in public, explaining the reasons for disagreeing with the MPC. The Urjit Patel panel, however, makes no mention of a veto power.
Sources say the senior policymakers in the ministry are likely not keen on the veto power for the governor.
There are also differences over the Urjit Patel panel suggestions not having provision for government-appointed nominees. “The RBI’s argument is that since the governor and the deputy governor are themselves government appointees, there is no need for separate independent nominees handpicked by North Block. Hence, they say the Urjit Patel panel suggestions should be accepted,” said a second government official.
AWAITING CHANGE
Finance Minister Arun Jaitley had promised to soon bring the amendments, which would enable formation of MPC. Minister of State for Finance Jayant Sinha had said in a post-Budget interview in early March that the government would bring the amendments in two months.
However, with composition of the panel and veto power for the chairman being the main sticking points, the MPC might take longer to be formed, government sources say.
More From This Section
“There are task forces looking into various aspects of the proposed MPC. Finalising the composition and responsibilities of the MPC will be a long-drawn process and might take four-six months,” a government official said. The person added the proposed amendments might not be tabled in the Lok Sabha or Rajya Sabha even in the monsoon session of Parliament.
There are still differences to be ironed out between the Reserve Bank of India (RBI) and the government. Sources say the finance ministry wants to adopt the key recommendations of the Financial Services Legislative Reforms Commission (FSLRC).
The FSLRC has recommended seven members for the MPC, including the chairman (RBI Governor), one executive member from the RBI Board (likely to be a deputy governor of the RBI), and five members who will be independent experts in the field of monetary economics and finance. Three of the external members will be government nominees, while the remaining two will be picked by the government in consultation with RBI Governor.
RBI wants the MPC on the lines of suggestions made by the Expert Committee to Revise and Strengthen the Monetary Policy Framework, led by RBI Deputy Governor Urjit Patel. The panel has recommended a five-person MPC, with the RBI governor as chairman, the deputy governor in charge of monetary policy as vice-chairman, and the executive director in charge of monetary policy as a member, in addition to two external experts to be decided by the chairman and the vice chairman.
In addition, the FSLRC has recommended conditional veto power for the governor, in that he or she would have the power to override the MPC in exceptional circumstances, but be required to release a rationale statement in public, explaining the reasons for disagreeing with the MPC. The Urjit Patel panel, however, makes no mention of a veto power.
Sources say the senior policymakers in the ministry are likely not keen on the veto power for the governor.
There are also differences over the Urjit Patel panel suggestions not having provision for government-appointed nominees. “The RBI’s argument is that since the governor and the deputy governor are themselves government appointees, there is no need for separate independent nominees handpicked by North Block. Hence, they say the Urjit Patel panel suggestions should be accepted,” said a second government official.
AWAITING CHANGE
- FM Arun Jaitley had promised to bring amendments to the RBI Act ‘soon’
- MoS (Finance) Jayant Sinha had said amendments would be brought in two months’ time
- Sources say final contours of the MPC being worked upon, amendments likely not in monsoon session or before
- Composition of MPC, veto power for governor, key sticking points
- Govt wants MPC on lines of FSLRC recommendations, with seven members
- RBI wants MPC on lines of Urjit Patel panel suggestions, with five members